Welcome to MEKO Q1 Report 2026 presentation. During the Q&A session, participants are able to ask questions by dialing pound key five on their telephone keypad. We kindly ask you to mute yourself after having asked your question. Now, I will hand the conference over to the speakers, President and CEO Pehr Oscarson and CFO Christer Johansson. Please go ahead.
Thank you, and thank you for joining us. Our CFO, Christer Johansson, is sitting beside me, and we will now present MEKO's result for the first quarter of 2026. The first quarter shows that our measures to improve our financial position are having an effect. Adjusted operating margin exceeded the level in the fourth quarter and for the full year 2025. We continue the efficiency measures linked to our major investments in our automated central warehouses, and in general, costs as a share of sales decline compared with the same period in both 2024 and 2025. It's also encouraging to see that our cash flow strengthens, supported by reduced working capital and a lower level of investments. This contributed to a reduction in leverage, which is prioritized area for us.
We achieved this despite the market conditions being unchanged in Q1 compared to Q4 last year. Car owners continued to postpone repairs that were not essential. This led to continued strong competition between wholesalers and workshops with price pressure in the market. Even though our measures to strengthen profitability are having effect, our profitability remains below target. We are therefore implementing additional cost reductions. Important part of this is targeted cost-saving program in Poland, where the workforce is being reduced by up to 10% during the second and third quarter. This process has already begun. We are doing this while also focusing on increasing our organic growth. Let's move to slide three. MEKO today holds a leading position in Northern Europe. This is a strong platform as we aim to increase growth and gain market shares.
On the one hand, we're focusing on strengthening the core business with state-of-the-art logistics and a higher level of service as the foundation. On the other hand, we're aiming to increase sales in growth areas such as e-commerce and exclusive brands. For example, our new brand, Every Part Matters, is now on the market to meet the growing demand for spare parts for older cars with a higher mileage. Another example is our focus on tires, which has performed strongly. Sales increased by 10% in the quarter. Ultimately, our aim is to strengthen our ties with workshops and make it more convenient for car owners. During the quarter, we took another step in that direction. Let's move to slide four. As one of the first companies in our industry, we are launching AI service that enables faster and more accurate car diagnostics.
This unique tool means that workshops can spend less time diagnosing vehicles and more time serving car owners. This benefits everyone. It improves the workshop's profitability, and it means shorter waiting times for the customer. This AI solution is also multilingual and is now being rolled out gradually across our markets. An easy and smooth customer experience is absolutely key for us, and we are firmly committed to continue to be a leading force in the digitalization of our industry. Before I hand over to Christer, I want to highlight some leadership changes which we have announced. Let's look at slide five. As communicated in April, Geir Hoff will assume responsibility for the entire business in Norway as of first of July. He is today Managing Director of MEKO's Norwegian Operations in the Sweden/Norway business area.
This change takes place as Morten Birkeland, responsible for the other Norwegian business area, Sørensen og Balchen, retires. I'm also pleased to announce Mikael Bjørnskov as the new Managing Director of MEKO Denmark. He will take over from Andrew Long, who has been the acting Managing Director for the past six months. Mikael is currently Managing Director of KOMPAN operations in Norway and Denmark, a global company specialized in outdoor playground and fitness equipment. He has an extensive experience in retail and logistics with senior positions in companies including Nobia, Tryg, Elgiganten, and IKEA. MEKO will be a part of MEKO's management team. That said, I hand over to Christer.
Thanks. As Pehr described, we are now seeing benefits from the investment and cost taken in 2025, and this has helped to offset parts of the market-related headwinds which Pehr mentioned. Now, starting from the top with net sales, we achieved a slight organic growth of 1%, which is somewhat overshadowed by FX translation to a stronger Swedish SEK. This is below our target of 5% organic growth, but it is a gradual improvement compared to the -1% we generated in 2025 as a whole, and the 0% we generated in Q4 of last year.
On gross margin, we are moving up from Q4, but compared to Q1 last year, it is down by SEK 1%, this is the key reason for why adjusted EBIT is down from SEK 230 million last year to SEK 200 million in this quarter. Unlike 2025, the results are no longer burdened by double rents or other investment-related one-offs, hence reported EBIT is up from SEK 161 million to SEK 173 million. Taking also financing cost and taxes into account, we see EPS increasing by 17% to SEK 1/ share in the quarter, this is of course not a level that we are content with, but it does exceed the SEK 0.64/ share, which we achieved in 2025 as a whole.
Equally important, we delivered strong cash flow from operating activities amounting to SEK 441 million. I've said earlier that Q1 is typically not the stronger quarter, this probably calls for some additional comments on cash flow on the next page. To start with, we have been able to bring inventory down, and this improvement come from many incremental actions around assortment and purchasing across our business areas. Another factor that has also helped working capital in the quarter is collection of annual supplier bonuses. Just to be clear, these are bonuses relating to 2025, which have also been accrued for in 2025. By going about the collection in a more focused way, we have been able to accelerate a larger share of these settlements into Q1 compared to earlier years.
Finally, looking at the non-operational side of cash flow, the lower pace in CapEx is visible, as we've said it would be. In addition, we have in the quarter also divested two smaller real estate assets in Finland. As a result of all these factors, cash flow was strong, and it was strong enough to reduce net debt in a noticeable way. Moving to page eight, you can see that as per end of Q1, net debt amounted to SEK 2.5 billion, down from SEK 3 billion a year earlier, and down from SEK 2.8 billion at year-end. With rolling 12-month EBITA moving, broadly speaking, sideways, this reduction in net debt drove a reduction in leverage from 4.0 to 3.6.
It's a step in the right direction, but we remained focused on the task at hand, which is to bring this back to the 2 to 3 target range. Liquidity also matters, especially in these uncertain times, we note that cash and unutilized credit facilities now exceed SEK 2.3 billion, up from SEK 2 billion at year-end. I also wish to mention that during the first quarter, our credit facility, which is supported by the three commercial banks, has also been extended so that its maturity date is now over in 2029. Moving to page nine and gross margins. The year-over-year movement is, in a sense, familiar given what we have described throughout 2025.
To reiterate, the longer trend has been characterized by price competition with some offset from the weaker euro, which is a large purchasing currency for us. On product mix, Pehr mentioned that we've seen good momentum in tires, which is a product area with lower margin but higher growth. If you instead look at the shorter term trend, gross margin is in fact improving from Q4 2025, where it amounted to 40.9%, and we are taking actions to stay on this healthier trajectory. Moving on to cost on page 10, there is no denying that efficiency is paramount to thrive in this industry. You've heard us go on and on about the SEK 100 million cost savings program and the benefits of warehouse automation. That's all well, and as illustrated in the graph, this has come with tangible benefits.
It has, however, not been sufficient to turn things around in Poland, where we are running with a loss. It is for this reason that we have now, during the quarter, initiated additional targeted actions with the aim to reduce our workforce in Poland by SEK at 10%, counting from the start of the year. This is one of several actions which together aim to turn Poland around before the end of the year. If we start our comments by business area with Poland/Baltics on the next page, it's clear that we've been moving sideways for some time. Here, the Baltic business is in fact doing well, meaning that our profitability challenge sits fully in Poland. Here I'd like to reiterate that Poland is an attractive market.
It's large, it's growing. The industry peer group as a whole is generating decent returns of, say, 4%, 5% EBIT margin. There is no reason why we could not get there, but it does require further actions. This is not only about staffing. We are also revisiting some of our sourcing decisions to better meet local demand. Moving to Denmark on page 12, the situation is certainly different. Here, sales were flat in local currency. Profitability improved to a respectable EBIT margin of 7.5%. With a stronger distribution capacity at the core, we've also been able to merge a few branches, which in turn has helped us to optimize inventory, which I mentioned earlier. All in all, I would say a very strong effort by our interim manager, Andrew, and the whole team around him in Denmark.
Moving to Finland on page 13, the contrast on profitability is stark. It is, however, encouraging to see how both cost savings and growth are now helping in our quest to correct the poor performance. Organic growth, in fact, reached 13% with good help from sales of tires. While attractive returns are still some way out, the first step is, of course, to break even. I would say now we're getting there step by step. Moving to page 14, performance in business area Sweden/Norway is showing clear effects from our focus on cost and profitable customer segments. An EBIT margin of close to 9% is strong, especially in geographies like Sweden and Norway, where consumer confidence lately has been mixed.
With such healthy return levels, the priority is growth, and I know that's what's taking a lot of Geir and Erik and the team's time. Finally on page 15, Sørensen og Balchen. It's been a challenging quarter with lingering effects from the warehouse merger. The weak top line is mostly supply driven, stemming from gaps in our availability. As you can imagine, a lot of attention has been directed towards solving the underlying issues here, and we expect to get there during the second quarter. One can also note here that in the year-over-year comparison, Sørensen og Balchen is burdened by higher internal cost allocations to the tune of circa SEK 10 million.
With those comments on Sørensen og Balchen, this brings a somewhat divergent set of business area comments to an end, and I would like to hand back to Pehr for closing remarks, followed by Q&A.
Thank you, Christer. Yeah, a few final words from me. I mean, the first quarter shows that measures to improve our financial position are having effect. Adjusted operating margin exceeded the level of in the fourth quarter and for the full year 2025. We continue the efficiency measures linked to our major investments in our automated central warehouses. In general, costs as a share of sales decline compared with the same period in both 2024 and 2025. We also strengthen our cash flow, contributing to reduction of leverage. As profitability remains below target, we are implementing additional cost reductions with a particular focus on Poland. We're doing this while we're also working on increasing our organic growth with several initiatives. This is done as we maintain full focus on reducing our leverage. That will be all for me. Thank you all for listening. Now we are open for questions.
If you wish to ask a question please dial pound key five on your telephone keypad to enter the que. If you wish to withdraw your question please dial pound key six on your telephone keypad. We kindly ask you to mute your phone after having ask your question. As a remainder if you wish to ask a question please dial pound key five on your telephone keypad. The next question comes from Mats Liss from Kepler Cheuvreux. Please go ahead.
Yeah. Hi, thank you. Well, looking at the earnings mix there, I mean, you still continue on a good trend there in the Sweden/Norway segment. I guess you're still underperforming. I mean, you mentioned Poland there, but Finland is also somewhat, I mean, you're not breaking even yet.
Yeah
What's the long mid to longer term outlook there? What could we expect when the savings measures are implemented?
I would say without guiding too much, ambitions is for both Finland and Poland, is that we should leave this year with profitability. That means that we will turn it to profitable numbers during the year. I think Finland is closer because we're getting very close to breakeven there. In Poland, we, as announced, we need to do some more cost reductions. Already started, it's still more to come here in the next coming quarters. Again, we have the ambition to leave the year with profitable markets.
Okay. Thank you. I guess you have upgraded your logistics structure here in several markets, starting with full service this year. Have you sort of still some sort of focus on keeping the customer happy and keeping the cost levels, well, maybe on a higher level than actually needed longer term?
I think we have, I mean, the logistics set up with the new automations in the three warehouses. The move in for all, it's from a functional point of view, is done and it's working. Goods are coming in, parts are getting out. That's all. It's a little bit left when it comes to efficiency, which is always in these cases when you have automations, you need trimming afterwards. I think that from a custom point of view, our availability to deliver is good. It is and has been in Q1 and a little bit challenging for certain subfunction, which was the last move. Otherwise, we actually even managed to decrease the inventory during the quarter without losing any availability for our customers.
Oh, thank you. Yeah, I mean, we have these geopolitical issues and I guess costs are moving. Do you need to sort of, well, move prices quicker? What have you done there during the first quarter to balance? Could you say something there?
We, of course, we follow it closely, but, I mean, the first products that we are affected is lubricants oil, where already when this started, we, of course, placed some extra order to make sure that we have the availability. We see that prices is going up both from suppliers and we are in those products have no problem with pushing that further in the market. We'll also see now that we start to have impact on especially freight costs, transport costs, and especially in inbound. Still not that, in that size that we need to compensate it with price, but we are ready to push that bottom also when it's needed. If things is not getting worse than it is now, then we are on the safe side. Who knows?
Yeah, sure. Well, it's a bit surprising that your, well, cash flow looks pretty good. You mentioned that, well, you have been sort of able to reduce inventories. Is this something that we will see going forward as well, or was it more of a good first quarter and, maybe it's back to normal going forward?
I do agree, cash flow was quite strong in the quarter. There are some factors which will not be recurring in Q2. For example, the acceleration in collection of supplier bonuses. You can only collect an annual bonus once a year. To the extent that this has benefited Q1, which it has roughly SEK 200 million, and that's not a recurring item that will show up in Q2. Again, we've also been operating with fairly low CapEx level. I think that's probably where we should stay for the near term at least. We did divest two smaller assets in Finland, roughly SEK 50 million added together. I would say there were many, many things which in combination then generated this quite strong cash flow.
Of course, the longer term, the more important part is the profitability of the business. If we can keep improving that, then that will be the main support for the cash flow in the long term.
Well, coming back, well, changing subject a bit, Norway there, I mean, you have this, well, Sørensen og Balchen have performed better historically. Was this quarter something of a setback, one time setback or is it sort of things are moving along as they should now?
It is two components in which we should be aware of. One is that during the quarter, they were still negatively affected by availability due to the move of the warehouse. That is gradually being better and better, was during the quarter and is we expect that to be during the second quarter, it will be back to full speed. That's one thing. The other thing that is that we internally has allocated costs in another way. They have another, it's SEK 10 million, which maybe not comparable in when you look at quarters between. That is cost that normally or before would have been in the Sweden/Norway business area.
Yeah.
Ambition is that it, this is the SEK 10 million that will continue. Regarding the availability and the sales, we will recover.
The SEK 10 million is just intergroup.
Yeah.
It's not any additional cost or such. We have all the costs. It's just about allocation.
Mm-hmm. Yeah. Thank you. Finally, just about, I mean, the main shareholder, well, back in last year anyway, they talked about the, they looked at the structure and thought that maybe Europe was too distant from the U.S., and what should we do with things? Have this continued to heat up or is it more in a wait and see mode now? Could you say something about this?
I can say from a very, very simple and honest view, I have absolutely no idea because this is discussions which is far away from us. I don't think we are involved in the discussions either. I don't know. That's a question for LKQ.
Yeah. Okay. Okay. Thank you.
Thank you.
Thanks, Mats.
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Okay. Mats, thank you all for listening, and thank you Mats for good questions. Have a nice day and see you. Bye.