Since forever, people have been moving from one place to another. The need for mobility is constant. The only thing changing is the way we do it. At MEKO, we enable safe and sustainable mobility for all, regardless of technology. We are the market leader in Northern Europe, a region with 70 million people and 35 million cars. Our logistics, brands, and people give us a unique strength. We have the capacity to service, repair, and ensure a better, sustainable life for any type of car. MEKO has a proven track record and over 50 years of history that shows our work is not limited by national borders or economic cycles. Our business model is solid in good times and bad. We offer a wide and easily accessible range of innovative solutions and products for workshops and car owners.
The electric car fleet is growing at a rapid pace in all our markets. Today we say electric car, but tomorrow we will just say car as the necessary green transition continues. MEKO is already today at the forefront of providing electric cars with the right service and repair. That is not enough for us. To expand our strong position over time and be proactive, we run academies and upper secondary schools to make sure that our workshops have the right knowledge to service and repair all cars, regardless of the fuel or technology. We enable mobility today, tomorrow, and in the future.
Hi, everyone. Very welcome today to MEKO's Capital Markets Day 2023. Today we're going to go into detail about MEKO's updated strategy, market and trends, and also updated financial targets that was released this morning. Also the transitions that we just saw, the electrification is going on with full speed. Where is MEKO in that process? Again, very welcome everyone here and also everyone watching this online. Okay. Also very welcome to you, Pehr Oscarson, you're the CEO of MEKO.
Thank you. Thank you.
I must start by just asking you kind of a broad question, but I think it's relevant and, a lot of people probably wonder. There's a lot of turbulence in the world right now, high inflation rates, high interest rates. How is MEKO handling the situation?
Well, I think we handle it very well. When we look back to last year and maybe the last quarter, we can see that we continue to growth. We're having organic growth. We keep and maintain the market shares, actually increasing some market shares in some of the markets. We had a strong cash flow. Also during that time, also been able to invest for the future and be ready for the transition that is coming.
I think it's almost, exactly two years ago since you had the last Capital Markets Day. At that time you launched a new strategy. It might be a bit tricky to summarize two years in a few sentences, but if you try, what has happened since then?
Yeah. A lot has happened, really. What we talked about that time. It was the strategy which we will come back to later today, slightly updated. We also talked about M&A and geographical growth. That was something which we managed to do a good acquisition last year when we acquired Koivunen with the operations in Finland and Baltics. That was something which was very important for us in order to strengthen the lead which we have in Northern Europe. Also, during these times, as I said before, we have taken a lot of good step towards the new future, so to say.
Okay. As a part of your strategy, you said last time that sustainability was an integral part of everything that you do. Has this changed in any way or is it the same?
I think we have increased our efforts, definitely. First I would say that MEKO is all about sustainability because we keep the cars on the road, and very often, if it's a somewhat modern car, it's better to prolong the life of an existing car instead of producing a new one. That, that's one area where we really do a good impact. We have also increased our efforts in general, especially around the environment. We have joined the Science Based Targets initiative. We have a new sustainability manager, which you will hear later. We're doing a lot.
Yeah, we will talk about the Science-Based Target later on as well. This morning you announced adjusted financial targets. Why have you made these adjustments?
it was important to have targets which better reflects in how we will create value for the shareholders. It's more connected to the strategy and also gives a better view on how we see the future going on.
Okay, we will go into detail about the targets later with the CFO, Åsa Källenius. Just to have a look on the screen there, increasing the lead into the future of mobility. That is kind of a statement with attitude, what does this mean?
It means that I mean, we have a strong position, but we need to strengthen that position. We are the market leader in Northern Europe, which we want to continue to be and increase that leadership. It's also to take care about the timeless business model which we have with a stable demand. By that also utilizing all about the logistics and network which we have. Third, of course, to be not only prepared but to lead this transformation into the green transformation, so to say.
Okay, that's it then. Increasing the lead into the future mobility, what are we going to talk about? Shall we have a look at the agenda?
Yeah. Just to mention who will be joining us, we will have Petra Bendelin, who is the Director of Business Development, Åsa Källenius, CFO, Tobias Narvinger, our COO, and then also Louise Wohrne, who is the new Head of Sustainability. We'll start a little bit more where I will explain a little bit more where we are at the moment. Petra will go more into the market and trends. Åsa will give us a update from the financial roadmap and little deep dive into the financial targets. Then Petra is back for the strategy update, and then we will talk about better operations, and that's how we create efficiency and synergies, and that will be done by Tobias.
We have two blocks with sustainability, both how we lead the transformation and also more hands-on what we're actually doing in this area.
Excellent. Then we have the Q&A.
Yeah.
Exactly. Okay, perfect. Thank you very much. Lot of things to go through. Why don't you start with telling us where MEKO is today?
Yeah. I mean, MEKO's vision, that is to enable mobility. That we will do regardless technology, and we'll do it in good times and in bad times. There is a stable demand. We have a proven business model by supplying the workshop with spare parts, services, and concepts, all that under well-known brands. As I said, we are the clearly number one in Northern Europe, and there's very few that can compete with our logistics and geographical footprint.
Okay, let's have a look here. You have expanded last year you said you acquired Koivunen and also entered the Baltic countries.
Yeah. Yeah, we are now in eight markets, geographical markets, with 70 million people and 35 million cars on the roads. We're operating with 600 branches. A branch for us, that is typically a local wholesaler. Sometimes it's also connected to a retail store that sells parts and accessories direct to consumers. Very important, the 20,000 workshops that are customers to us, and especially the 4,000+ workshop that are affiliated with any of our well-known brands in the market.
Okay, you talk a lot about availability. What is the benefit with all the brands and all the availability?
It's all about the car owner. Because we need to have different brands in order to find the right concept for the right kind of car owners. I mean, car owner could be a company, a private person, it could be a leasing company, a rental company, and so on. Different brands, different locations. It's important to be very close to the customers. And also, the availability for us is very much to support the workshop during the day or often overnight to be able to actually service and repair the car during the same day. Because we as a car owner, we don't want to keep it there for the night. That's why the local availability through these 600 branches is extremely important in this industry.
How would you define MEKO? Is it more like a business to business or business to consumer? You talk about the car owner. How would you.
it is business to business, 90%. We have approximately 10% of the revenue which are so to say, where we sell directly to private persons, retail kind of business. That's only done in Sweden and Norway and through some of the brands. Again, 90% is business to business, where the customer is just a workshop. We do that with a very strong end customer insight. We do a lot of research and work to actually understand the car owner's need, because that's how we then develop the concept for the workshops in order to be so they can be successful on that local market.
You have expanded the last couple of years, five years or many more years. Looking from 2018, you acquired Inter-Team, and now last year, Koivunen. What is the point of expanding geographically? What do you want to achieve?
There's several reasons. First of all, I will mention the purchasing power. We can do a lot of synergies because we are a big buyer. Here we also work together with the LKQ, which is the largest shareholder of MEKO. When we negotiate with the suppliers, we are very strong in that. Purchasing power is important. Where it's also to be able to share synergies and resources for development, could be, for example, digital solutions, online booking, systems, and so on, that we can utilize in several markets. By that, being able to put the resources into it and also share the costs of it, of course. Then also, it's also a matter of sharing the risk in some of, because there is quite big difference in these geographical markets.
We know, for example, that Norway is very early in the electrical car. We know that Poland and the Baltics has very different economies, still growing economies. Being in several of the markets also spread the risk.
Okay, shall we have a look at the distribution on that sales, if we can have the next slide, please. We can see here that it's quite evenly distributed. In this market, also quite tough competition.
Yeah.
How do you handle this?
Yeah. It is. I would say the main competition or how we like to compete is with having the strong concepts so that the workshop chooses to be with our concepts because we can deliver the right training, the right support of parts, the right tools and equipment, and so on. It's also about which I mentioned about the local availability to always have the parts which the workshop needs. That would be the two most important way of compete.
You compete in the in the markets, you grow the present business, as we see, you invest for the future of mobility, creating new revenue stream. How important is that for MEKO at the moment?
It is important because there is a transition going on, even if it goes slow. Again, we have 35 million cars. Until all those are completely electric or what they will be in the future, I don't think that battery, electric, the end solution, it will probably be more development in the future. But to widen our offers, services, and look a little bit on the side, that's also important in order to be on more places. I think that we have also, we have brands, we have logistics, we have a lot of things which can utilize on doing other things as well.
Okay. I know that you get this question from time to time, but I will still ask it. There are fewer spare parts in an electric car compared to a traditional car. Isn't that going to affect the business in the long run?
It will affect the business on those parts which don't exist on the EV. That's right. It's still a bit early to say, because, I mean, the average car of combustion engine cars is 11, 1two years, and we have very few electric cars that have lived so long. Of course, there is other components in electric cars, but we also see other things that needs to be replaced earlier and more expensive in EVs. There is very expensive jobs on brakes, steering components, tires, and so on. There will be another mix. That's why it's so important for us to develop our assortment all the time to adjust for that.
Looking for on the lifespan of electrical car, we believe that it will be approximately the same aftermarket value.
Okay. The same. Okay. Thank you very much. Very interesting, Pehr. To know the truth about the future, or to get a glance on the future, it's important to know what is happening here now. I say thank you to you, Pehr, and welcome Petra Bendelin. You will talk more about markets and trends. Okay, great. What can we say in general about the trends that are affecting MEKO at the moment?
MEKO has a stable business model, and the need for mobility is timeless. Of course, we need to monitoring the trends going on out there, and we see both challenges and opportunities, of course. I would say in general, that we are affected very much of the same trends that are going on out there. We see a shift from buying products and one-time services to buying subscription-based services. We have a high speed in technology development combined with an increased focus on circularity, and we also see a shift in the consumer behavior. They are demanding convenience, availability, transparency in a whole new way.
Okay, quite substantial changes. Are there any of these trends that are, stands out in a way, in terms of challenges or opportunities?
I would say sustainability, because new legislation is expected, and we also see increasing reporting demands that requires investments from us and new ways of working. There is also possibilities within this shift that we see. We note that 65% states that they rather buy from a company that is seen as sustainable, and even more, 70% states that they are willing to pay more. We could do some good business here as well.
Interesting. Let's have a closer look, shall we, at the market and trends, and how they affect MEKO.
Yes, absolutely. We have a stable model, and that is true also when times is changing around us. We need to move, and we want to move. We develop in line when we see that the underlying market growth within the automotive industry is shifting towards electric vehicles, and also when the mobility behavior is changing. We see new ways of ownership and buying and how you choose to move yourself. We also note that the competition is increasing, and also from new directions. We have the born digital entrants coming in, often competing with low price. We have both the OEMs and suppliers are striving for control over the customers, and we have an ongoing consolidation in the market as well.
Okay. These are changes and how do MEKO change? Do you have an example of that?
Absolutely. We need to change when the market is changing, of course. We're developing new services, new kind of products. Because the consumers, they expect the same from us as they do from other industries with when they are ordering food, or taxi, or online healthcare, and we need to be prepared for that change. Then we also have responsible sourcing, cybersecurity, and the Science-Based Target that we have committed to. That's all example of how we're meeting the rising global challenges out there. Also with a sustainable mindset, we can find new products based on, for example, circularity.
Okay. To get to know what the trends are, you also, I understand, have produced this product. Quite an impressive, I must say, report. Can you tell us more about it? It's called the Mobility Barometer.
Yes. We are yearly conducting this survey. It's in the Nordics. We ask more than 4,000 respondents what they think about mobility and how they act and what decision they are making regarding mobility. That gives us quite some good insights of the automotive and the mobility.
Okay, let's have a look at a few of those insights, shall we?
Absolutely. Here to present, I'll give you four colleagues. We have Johanna, Gintare, Shad, and Vidar.
The need for mobility is timeless. People will always need to move from one place to another, but the way we move will change over time.
In 2022, we launched the Mobility Barometer, a unique report that shows what people in Northern Europe think and feel about mobility. What are their expectations? What's most important when it comes to transporting yourself? What do people think about mobility in the future?
With the insights and data from the barometer, we have the answers to these questions and many more. Between bikes, electric scooters, motorcycles, public transportation, and cars, there's one method of transportation that stands out.
The car is still king. We ask people to rank the most important factors for transportation and use that to determine what really matters when getting from A to B. People were also asked to rank the same factors when it comes to specific transportation methods. When puzzled together, the car checked all the boxes.
The global trends, people's behaviors, and demands do make a difference. The green revolution is here. People want to make better choices, such as driving less and biking more, but there just isn't a good enough substitute to the freedoms and comforts of the car on the market yet.
Even though the electrification of the car fleet has taken huge leaps forward, people still have concerns. The positive impact on the climate is overestimated, and you can't reuse the battery.
There are some other cons with electric cars as well according to the people surveyed. The price, the short reach, and too few charging stations are some of the main concerns. These concerns get more apparent the more rural you get.
What we know is that we are living through a transformation where the electric car fleet grows bigger by the day, and people's interest, even with the cons, is growing quickly.
The electric car industry continues to grow and adapt to the customer demands. The leading players in automotive industry are shifting their focus towards electrification. Meanwhile, new players are also joining the market. Consumers demand their electric cars to be more affordable, sustainable, and safe. We need to be brave, and we need to look into other alternatives. One concept we find in the barometer is car sharing. Instead of owning your car, people are positive towards sharing it with others. Regardless of how car ownership might look like in the future, one thing will remain, and that's MEKO's mission to enable safe and sustainable mobility for all.
It's difficult to make predictions about the future. History has shown us that new unexpected technologies can be developed rapidly and existing ones can be refined. We do not know for sure. According to the barometer, most of us will be taking the car into the future regardless of the fuel type.
Okay, that was a few highlights from the Mobility Barometer. We will take the car to the future, according to this survey, anyway. How many cars will there be? Is it possible to predict?
It is possible to predict, and the future will tell if we're if it's true or not. We have two countries as example here. We have Norway, who has the fastest growing pace within electric cars in the world, and we have Denmark. Denmark is quite similar to Sweden, a bit ahead of Finland and the other countries. We are expecting a growth on the entire car park of approximately 1%- 3%, and that's in line with the historic growth that we have seen. Looking at electric cars specifically, we see a growing number both in absolute numbers and also share of the car park. Looking at Norway, we have almost a 20% growth yearly. That's from a high base, and they are expected to reach almost 60% in looking at 2030.
In Denmark, it's going faster, around 35% growth each year, and Denmark will reach around 20% 2030.
Okay, so that is a clear trend then. What will this mean for MEKO?
Well, exactly how we will be affected, it's too early to predict. We talked about it already. An electric car, it contains fewer parts, but on the other hand, they're expected to live longer. We also note that the parts, components are getting more expensive, and I would say that we have never experienced our car ownership becoming cheaper. Nevertheless, we are prepared. We are well ahead with the competence, available parts, et cetera, to these kind of cars.
Okay, to wrap it up, everything with the markets and trends, what is the key conclusion?
I would say that car is still king, that we learned, and the need for mobility is timeless, and we are ready. We're well prepared. We know the trends then, and we're ready to take advantage of them.
Well prepared. Thank you a lot for that, Petra. I think it's time. Thank you. It's time to have a closer look at the financial targets that was updated this morning. I turn to you, Åsa Källenius, the CFO of MEKO. Welcome. This morning we learned that the targets were updated. Why have you made these adjustments?
As Pehr already touched upon, we do the update in the long-term financial target because they are based on historic numbers, and we do think they better reflect the strategy we have going forward. It's all about creating shareholder value.
We see the targets here on the screen. Just to clarify, this target is changed when it comes to EBIT. You previously had target of reaching an adjusted EBIT margin of 10%. Now it's an annual adjusted EBIT growth of at least 10%. What is the reasoning behind this level?
Well, MEKO is a growing company. We have grown organically by smaller acquisition and also by entering new markets with larger acquisitions. Our larger acquisitions have initially diluted our adjusted EBIT margins and set a new starting level for the margin. As you also know, we have a proven record, track record in improving adjusted EBIT, and after some time, increase adjusted EBIT again. That makes us confident that we will reach the targets.
From an outside perspective, how important is the EBIT margin for MEKO now? Is it as important as before?
It is as important as before, perhaps even more important, we are constantly working to improve EBIT also. If you notice, we have a sales growth target of increasing 5% and an adjusted EBIT growth of at least 10%, that means adjusted EBIT margin will also increase.
Just to have a look, quick look at the dividend policy, it is also updated. Now the target is to pay dividends correspondent to 50% of profit after tax. Before it was more than that. It was at least 50%.
Mm.
What will this mean in the future?
We have the same ambition to pay dividend also in the future. The update of this dividend policy is more to be more precise what the shareholders can expect going forward. It's not at least anymore, it's 50%.
Okay.
Of course, it's always a review of the Board and AGM what the level will be.
Okay, excellent. Shall we have a deeper dive into this target please, Åsa, if you can go through them?
Yes. Looking at sales growth, we kept the target to grow 5% in average annually, as a combination of organic growth and smaller acquisition. This time we state that this is excluding selective M&As. This part is new, excluding M&As.
Okay. If we have a look in the rearview mirror, how have you performed when it comes to sales growth historically?
We have a very long and proven history of growth. Looking at the last 1two years, we grew 12.6%. Looking back five years, we grow even faster with 19.2%. These growth rates, they include selective M&As, Sørensen og Balchen in 2011, MECA 2012, Inter-Team, FTZ 2018, and also our new, newest member in the family, Koivunen, in 2022. Over the past five years, we've grown organically by 3%, and that's also in line with the market growth. This is the same pace we are expected also going forward.
Okay, you have grown, around 3% annually, looking back.
Mm.
How will you manage to grow more than 5%?
To start with, we have a very strong position in our market. Based on that, and also the strategy we have, the growth strategy we have going forward, will mean we will take market share on top of the pace the market is growing, the 3%, on top of that, the strategic initiative we have. We will also have full effect from the Koivunen acquisition in 2022 in six months, January to June this year. This makes us confident that in five years' time, we will reach net sales of SEK 19 billion.
Okay, reaching a net sales of SEK 19 billion. Let's continue to the targeted profitability as we touched upon. It is, as I said, annual adjusted EBIT growth of at least 10%. Looking back also in this regard.
Mm.
What do we see?
Well, we see, looking back five years, we can see that we have grown adjusted EBIT by, in average, 9.5% annually. 2022, adjusted EBIT was somewhat a little bit lower after the historic high year of 2021, which was our record year ever in the MEKO history.
Yeah, but looking at this, I mean, the new target, the updated target implies an even stronger growth than what you have actually performed the last five years.
Mm-hmm.
What is your view on that? How will you manage this?
Well, based on the historic performance, we have a strong start. Add on that, the activities we have linked to our four cornerstones in our strategy, we are confident that in five years' time, we will reach SEK 1.6 billion in adjusted EBIT.
Let's have a look at the net debt target. That is unchanged, and you should be in the range of 2x-3x.
Yes.
If you, if we look at the current level, in Q4, it was, I think, 3.36x?
Mm.
You were above the level.
Mm.
How are you going to get back within the range?
Our business model enables a very strong cash flow generation. We have proved to being able to handle temporary higher leverage, high net debt. Looking at 2018 here, after the acquisition of Inter-Team and FTZ, we were on very high leverage number, 6.44, when closing 2018. Our strong cash flow took us down. It took two years to be back on track and to be on target again. The target is to be between 2x and 3x. I think we have proven ourself that we can take temporary high leverage and work it down. Anders, you are right. We are temporary on a high level than we have as a target. We have now the ambition to be within target again when we close this year, 2023.
Okay. We'll see the curve go down, in a few months' time.
Yes.
Yeah. Okay, excellent. You mentioned cash flow. That is important for you. How have you performed in the past, if we have a look at that as well?
Here you see the last three years, we have been able to generate SEK 5.2 billion from our operations. This has been used to deleverage, pay down debt related to the acquisition of FTZ and Inter-Team, and also to finance the acquisition of Koivunen in 2022. It also enabled us to take some higher working capital related to the higher inventory levels we've seen in 2022. It has also enabled us to pay dividend in the spring of 2022, and even left us with a little bit more cash in bank than when we started the three-year period.
Okay, let's have a look at the dividend policy as we touched upon earlier, and as you just mentioned. Can you elaborate a bit on this?
Yes. We have a strong history of paying dividend for many years. It was SEK 7, and then we made a acquisition, a right issue in 2018. The Board has stated it stays firm with the policy to pay dividend also in the future. Of course, it will review the financial position, the market, acquisition possibilities, investments, et cetera. Also, we have the possible to do buy back of shares. It's all about creation value for the shareholders, and the Board has stated this year they recommend to the AGM to pay dividend of SEK 3.30 in two installments to be paid in May and in November.
Okay, great. to wrap this up, Åsa, what are the main conclusion as you see it?
Well, as I see it, we have a very strong proven history of profitable growth. We have a resilient business model, and we generate strong cash flow. Backed on this, we are confident that we will have net sales of SEK 19 billion and an adjusted EBIT of SEK 1.6 billion in the end of this five-year period, and get within the leverage target by the end of this year.
Okay, that was a clarification. Thank you very much, Åsa, for that. Now we know how the financial roadmap looks like a bit more. It's to get a better understanding of how this is going to be achieved, let's have a look at the strategy. Petra? Welcome again.
Thank you.
It was exactly almost, as we said, two years ago since you launched the new strategy. How have you managed to deliver on it, would you say?
I would say that we have done well. We are executing on our strategy in line with the plan that we have.
Okay, any news since you launched it?
Well, the strategy is the same. It's a solid strategy that we have trust in, and we have a clear vision what we're aiming for. Of course, we are reviewing our strategy yearly just to make sure that we're on the right track. We have our four focus areas. We have Better Operations. That's about unbeatable availability and efficiency. We have Better Workshops. That's best in class workshop concepts, both for the workshops and the car owners. Better Mobility is focusing on car owner, car drivers, to give them a good customer journey. Then we have Sustainable Growth that is future-proofing our business.
Okay, four areas. Shall we have a look in each of these areas what you have achieved?
Absolutely. Starting with the better operation, and this is a broad area. Here we are covering supply chain, assortment, availability, MEKO as an employer, and also data and IT structure. Looking at some of our accomplishments and what we are doing, we are constantly optimizing our network. That means that we close, we merge, and we're opening new branches. As communicated in Q4, we recently closed and merged nine branches in Norway. We are extracting synergies from our acquisition, and Finland in focus here, that we're on the right track to extract the SEK 40 million that we have communicated before. That also include the merge of the two warehouses of Mekonomen and Koivunen in Finland. We launched a talent program, contributing to supply us with the future leaders within MEKO.
We had also committed to set Science-Based Target that Louise will come back to and talk more about later.
Better operations is an important contributor to EBIT, and Tobias Narvinger, the COO, will talk a little bit more in detail about that in a few minutes. I also know that you have quite some interesting development within private label.
Yes.
Can you give us some insights?
Yes, I'll be happy to. We got it here. Private label is product sold under our own brand that we own. It gives us a unique assortment and put us in the driver's seats for development and positioning of these products. We have worked with private label quite some years. Stable growth. Looking at the last five years, we have over 12% growth. Last year we had sales of almost SEK 1.4 billion, so this is a really important area for us.
SEK 1.4 billion, quite a lot, I must say. Let's go on to the next area, shall we?
Yes.
Workshops.
Better workshops. It is extremely important for us, of course, to have loyal workshop that are purchasing from us. One key component to get those workshop loyals is our pace of concept development. A few example what we have done within concepts is we have a service called Profitable and Efficient Workshop. It's a service, consultant service, where we help the workshop are becoming more efficient, also more profitable, and at the same time, they're increasing their purchases towards us. We have launched a glass concept for our affiliated workshop, and that based on new agreements with insurance companies. We have launched the market's best business system for workshop in Norway and Sweden. All of this is contributing that we're increasing the number of affiliated workshop and also increasing their purchasing loyalty.
I remember last time on the Capital Markets Day, you promised 1,500 new workshops having the competence to deal with electric cars. You call it E+, that is your definition of.
Mm-hmm
kind of a standard. What are we today? How many?
There has been an amazing focus and dedication from the organization as well as the workshop, so we actually delivered before deadline and have a lot more than 1,500 workshops today. We have 6,000 people in our network with the competence to handle electric car, so we're very well positioned. Education with the new technology is one thing that always has been super important for us to keep up with the development. We also have trainings within other areas, such as legislation, business, leadership in order to be well prepared. We lead the company competence development within our own, our affiliated, and also other workshops.
Other workshops, you educate competitors as well?
Yes, we do. For us, that's about taking responsibility for the industry. We have a lack of mechanics already, and we're in the middle of a technology shift. By us contributing to the industry, we also ensure that there will be an affordable choice for the car owner, also in the future.
Interesting. The third area is better mobility. Let's have a look at that.
Yes. Better mobility. This is about the car owner, the car driver. We're pinpointing both companies and private persons. It's strongly linked to better workshop area, 'cause we also know that another loyalty increasing activity from the workshop is us bringing customers to the workshop. That's what the area Better Mobility is all about. We have a strong fleet offer to the business-to-business customers that had a growth of around 30% last year and with a total revenue of SEK 300 million. We launched service agreements during our last capital market day, and we actually sold the first one during the presentation here on stage. We see a strong growth also within this area, 70% compared to last year.
We have also launched a super convenient service for the car owner, mobile service. You no longer have to go to the workshop. The workshop comes to you instead. We are doing that within our own brands, but also through our acquisition in OmniCar service. The fourth one, not on this slide, but on the next slide is digital bookings. We have our own booking solution. It's present on multiple web pages and under several brands. It's a white label solution. We have been working with this a long time, and we were a pioneer when it comes to digital bookings and also bookings with a fixed price that creates a lot of trust from the car owner. You know what the price will be when you're leaving your car to the workshop.
this was actually launched back in 2016 under the brand Mekonomen at that point.
Okay. Are people using this service or are they still, you know, calling the workshop as you used to or?
It's a mix. We see, of course, some shifting from the traditional ways and moving to the online channels. As much as 30% are brand-new customers to us that have never visited us before. We also know through this online availability that we meet the newer car owners and of course also them with electric cars. It's a super popular service to use. We had almost a quarter of a million booking going through this solution last year, and the average value of a booking through this channel is around SEK 3,000. We have a lot of tire shifts as well, lowering that figure a little bit. SEK 3,000 makes a total revenue of more than SEK 700 million.
SEK 700 million, it's quite a lot from this booking service. Let's go to sustainable growth.
Yes.
That's the... Yeah.
Sustainable growth is about future-proofing our business, and we're doing that by expanding to new markets and areas. We are also looking for new customer groups or powertrain adjacent areas. Looking at this, of course, the largest achievement did last year was the acquisition we did in Finland, and it strengthened our position as the market leader in Northern Europe. We grew rapidly in Finland at that point and also entered three new markets with Estonia, Latvia, and Lithuania. We're also having a smaller acquisition that we're constantly doing, and they of course bring new revenue and also gives us the possibility to extract synergies. A good example is Avant that we acquired in February. It's a. They have a timeless assortment of car accessories. They gave us access to.
They gave us exclusive rights, to some of these product lines and also a new customer groups that we hadn't before. The best thing is that this customer group also have an interest in our existing assortment.
What is a timeless assortment?
Well, timeless assortment, is something that will fit also an electric car or.
Okay, great. Thank you.
or whatever powertrain we've got.
Excellent. Okay, you have launched MECA Truck in Finland already?
Yes, we have. That's the next area. We have. This is an area with huge potential. Looking at the heavy vehicles, they are a few years behind how we know the passenger car side and the light vehicles. That's an area that we know by heart. It's the same business logic, but there is a lot of work to be done, both as a wholesaler and with concepts. We launched in Finland already. They had sales within heavy vehicles, but they needed a new brand for their concepts. It's a good example how we can extract synergies and act quite quickly. During a few months, we implemented MECA heavy trucks in Finland.
Now we're present in Sweden, Norway, Finland, and we have a plan for Denmark, and that creates a Nordic concept for heavy vehicles, which also is a very strong base for us to work with business-to-business customers also within this area.
Let's see where that line is going in the future. It's quite steep already. Thank you very much, Petra, for that. I think we'll have a short break, grab a coffee or some refreshments, and we'll go back in just a bit. Welcome back, everyone. I just got a question about this Mobility Barometer. This is it, and it's lying outside if you want to have a look and also maybe take a copy if you want to. Afterwards, it's outside. Also a reminder, if we can get the code on the screen, please, the Mentimeter code, if you want to... There it is.
If you want to ask questions digitally before the Q&A session, just go in there, scan the code or use that code, and we'll try to answer them. Excellent. Next, on this, in the agenda is to talk more about operational excellence, better operations within MEKO. To discuss that, we have our COO, Tobias Narvinger, on stage. Please welcome. Tobias, MEKO has done a lot within operational excellence. I think a lot of us know that, but is there any more potential as you see it?
Yeah, I think there really is. I mean, we have almost doubled in size here. We are a really different company to what we was just five years ago here. That opens up, of course, to do a lot of things to generate more sales growth, but also take out cost and efficiency in this new environment and across the markets here.
Okay. Can you give some examples, please? I think we have a lot of people-
Yeah. Yeah. I mean, different areas would be, for example, here within purchasing, as we talked about, but also very much to create outstanding logistics, the widest product offering, also then how to leverage on this number one position here. If I may start here with purchasing.
Do. Please do.
I mean, we have a very solid history here of the select acquisitions we've done. We generated a lot of savings directly. Normally, those purchasing synergies comes about a year after the acquisitions here. In 2010, we had the first acquisition of Sørensen. The year after, we realized some synergies. Thereafter, we had the acquisition of MECA, and we managed then to have big savings for the whole group thereafter. It was a little bit quiet for a couple of years, and then we had this, which is almost like a merger actually when we acquired FTZ and Inter-Team. Thereafter also came the synergies.
That's why we also can say so confident now here that we are really sure also on the acquisitions here of Koivunen that we will generate the promised savings here. We know it takes some time, so full effect will come here in 2024. With that said, we see initially very early in the acquisition phase that we then get the purchasing synergies, but also long-term, there is of course more potential here to optimize the supplier selections. It's a lot more things also to sit down and talk about, how are the suppliers performing and measuring on delivery performance, quality, and so on, and not the least here during the pandemic, you can see who's really good supplier. There's more optimizations to do here as well here.
More to do. You measure this, and you evaluate this, more now than you used to, or is that a change?
I would also say that being in eight markets, that gives a more complete view also on the suppliers here and seeing the total view here. It's more of the same but on a bigger scale here.
Bigger scale. Okay.
Yeah.
Let's move on to logistics.
Yeah. Here we actually see our logistic network here. We tried to put in all our branches. It wasn't really even possible here.
One dot is five branches?
Yes. Yes. That kind of gives you a view how present we are in every market. I think actually in Sweden, it's on a McDonald's level. It's as likely to find a Mekonomen branch as to find a McDonald's.
McDonald's.
Of course, that together with our central warehouses, which you can see in all the markets here and also some regional warehouses. We have a tremendous network and, of course, optimizing this all time. We can do a lot of on last mile distribution. We can do cooperating between the branches. We can also, of course, automate a lot of operations here. We've done an optimization project in Strängnäs in Sweden. We're looking into doing that in other markets. You can also understand that we can of course make sure that we have some slow movers not in every location, instead we keep them in one. Not talking about inbound flows as well. Of course, just combining our flows into the company also gives us a lot of opportunity to optimize here.
There are very many different ways here to improve. I mentioned optimization, and that's one way we're going forward now also in Denmark, where we're reusing the experience we had in Sweden on automating our central warehouse. That's one opportunity also to show on best practice, let's say.
Okay, when will you start building the warehouse in Denmark?
It's actually being done here, maybe if we can jump one slide here. We are now making the ground preparations for this warehouse, the background in Denmark is that we're very dislocated in several buildings. Combining this into one location and also of course putting in optimization, we'll really have higher efficiency and output and also secure the growth here. This is a 3D model of what it would look like. Just looking on the ground preparation is not that exciting here.
No.
We're really here in the planning mode here.
Okay. I think, some might wonder, can you quantify this in any way? I mean, is it possible to estimate what this will mean in cost savings or efficiencies, and so on?
We have of course in such a big project internal business cases on what we'll deliver, but we have not externally communicated anything. I think it's more saying this one of many activities which we have to take out future efficiencies and also secure that we're very confident in the future here that we will need space and availability to deliver parts in the future as well here. And I think this is just one part of this optimization. There is also of course other opportunities here.
Okay, let's come back to efficiency savings, but can you develop the other area? It was logistics optimization.
Yeah, again, going back then to talking about huge network we're having here, we are actually doing optimizations all the time. I would say especially in Sweden and Norway, we are not that consolidating, but showing also just the availability in one branch to the next line one is also an opportunity we haven't fully utilized so far and are working on. We have seen, especially in Denmark, what it means of having the market leader position and the best distribution all the time. We believe that we can do more continuously here also in Scandinavia. In Poland, we have actually since the acquisition built three regional warehouses, that is also to the same theme, having on-the-day delivery.
I think Pehr explained that earlier, but it's really about having the parts on the day in many cases because the car is on the lift, and when you need something, you need to have a part available. Availability is really king in our industry. And it also means that if we are not having one part showing it, you might lose the whole order because then instead the workshop will turn to someone else to buy the whole workshop order, and that's why it's so important all the time to have the availability here.
Availability, but still you, as you mentioned, you closed down and merged nine branches in Norway.
Yeah
in Q4. Can you tell us a little bit more why and the reasoning behind that?
Yeah. Here we actually decided to do this on a, on a bigger scale, just doing it once. I would say it's not like we're checking out. We really see that we're merging and instead again creating better customer services here by having bigger branches. Again, coming back to Sweden and Denmark, we are doing this continuously all the time. We evaluating are we in right place, can we do more by having a bigger branch instead? It's a normal process, securing that we all the time are in the right location here.
Okay. Another area more sales focused is ensuring the best product offering, I think you mentioned there.
Yeah. Yeah.
what are you doing there?
Yeah. We talked about this earlier as well. I mean, what we really have done the last years is to secure that we now have the best offering on electric vehicles. Thereby having the parts for everything which is needed. We are also even more active in our working with suppliers, demanding them to develop parts for us. We are even in some cases going directly to manufacturers in Asia and so on to develop the parts, just building a position that we are ready for electric vehicles coming into our workshops. A third topic here is again talked about earlier as well, consolidation of private labels.
The more volume we have, of course, the more we can take in our own private label, meaning we can develop our ranges and thereby also securing our profitability because we're taking out basically one chain in the distribution, going directly to the manufacturers instead. That's a huge opportunity also for us. Then the last, but not the least at all, is to have more sustainable products. This is something we're putting more and more focus on. I would like to state, though, that already today we are actually reusing remanufactured part for starters and alternators, brake calipers and so on. In some sense, we are really in circular economy already today. One can also say, like in big product like brake discs and so on, it's scrap metal used.
We are really part of the circular economy, but it's something we of course will develop even further here, the coming years as well.
Let's have a closer look at the number three there, private label. What are the upsides as you see it? And what are we seeing here?
This is actually all our brands which we have today, and as you can see, there's a lot of them. What we have had is a great success with ProMeister, which is our brand here used in Sweden and Norway. We have now also introduced it since a couple of years back now in Denmark. What we then see is of course that we can build kind of a premium brand with all the volumes we're having. Maybe even more important now also coming into Poland and also Baltic States here, they are more focused in many cases on cost and want to have cost-efficient alternative, maybe a little bit lower spec. With our volumes now, there's also possibilities for us here to develop a price fight.
we can make even more and scale which no one else really, our competitors can do here, and I think this is what it's all about. Nobody can really do the same here as we have a number one position here in our region.
Okay. Talk about scale. This is a substantial part of sales?
It is, and a lot of revenue comes from private labels. Also Petra showed the graph earlier. It is also very good for us because we build the loyalty to our brands. If it's a good product, the products will be loyal to MEKO. We can also say that once we introduce in many cases a ProMeister on one references, we take almost like 80% market share. It's a very well-perceived brand once we introduce new products here.
80% sounds like a good figure.
Yeah.
We talked a lot about MEKO having the leading position in Northern Europe.
Mm.
What can you do more to utilize on the size?
I think if we show this one again, you, of course seeing the geography here, one can understand if we very early can see what's happening in one market, reuse that in another one is an opportunity to us, for us very early to catch up upon trends. We can of course, if you connect all these warehouses, instead of having 100,000 items in Finland, in Sweden, in Norway and Denmark, if we can connect that together, we can of course show a much wider offering to the customers. Connecting ourself in this network is very important. That gives us higher availability towards the customers.
Also it's very obvious here that we can help also for the smaller countries here now in the Baltic states, they are now connecting down to Poland, and that is a huge lift towards what the early years could get parts from Finland. It's really about being all around the Baltic Sea here is helping us and really again, giving us the position which is very hard for someone else to copy here from us here.
Okay. So you've touched upon quite many opportunities and the possibilities here. I do have to ask, is it possible to quantify this in any way? What will this mean if you look at the financials?
Yes. No, I mean, it's very hard to quantify. I think what we want to send across here is that there's a lot of different opportunities which has opened up being this big in this region. How you weigh all this together is very hard to say and also what's happening in the market. I think the signal from us is that we are very confident on the financial targets we launched. We have a lot of activities. We have warehouses in Denmark coming up, giving efficiencies. We have activities in Sweden, Norway and so on. We're confident that we will go in the right direction.
We have also said that, I mean, internally, we are constantly monitoring also OpEx levels in compared to sales, and we are confident that we will take out 0.5 percentage unit on that one every year. It was a very tough year this year, of course, but this is a long-term goal, and that's why we're having a lot of activities, and thereby we see that we will for sure deliver on these kind of projects.
Okay, thank you very much, Tobias.
Yeah.
Thank you for that. Now we know where MEKO stands, and we have looked at markets and trends, financial targets, and also transformation. I think it's time to dig a bit deeper into the future of a more sustainable mobility. Please, Petra, Louise, and Pehr, come up on stage. Let me start by saying welcome to you, Louise Warner. You're the new Head of Sustainability at MEKO. Welcome.
Thank you.
Okay, it's a shift as we've touched upon. Let me start by asking you, Pehr, how do you describe this shift and MEKO's position in this shift?
We are and we will be playing an important role in this shift in mobility. As we have talked about, there is a lot of places where we can really do a big change through our different offerings. Best in class, being first, so on.
Okay. Best in class, being first. Petra, you mentioned that sustainability is one of the clearest trends when we talked about markets and trends. If we look back and see what MEKO have done recent years, what have MEKO been doing?
We have been very successful getting the basics right. We have control over our environmental footprint. We have secured responsible sourcing. Offering safe and inclusive workplace. As we have talked about already, the education, we have a high degree of competence.
Okay. Louise, you're quite new. As I said, you had the same position at Billerud, which is in pulp and paper industry. If you compare the sustainability work within that industry with the aftermarket industry, what do you see?
I would say that the pulp and paper industry has focused on sustainability more in the past, but I think there's a lot of potential in the aftermarket industry, and I think that MEKO is a leader, and now we're accelerating that work.
Why do you think that the aftermarket industry Has been as in the forefront, so to speak, as other industries?
I think some other industries have had more regulatory demands on them and also higher customer demands, which has forced them to focus more on those questions.
The theme today, as we've touched upon, is leading the transformation, part of the theme anyway. Petra, that is what MEKO is stating. Is that a bold statement?
It's a bold statement, but I would say it's true.
Okay.
No, but we are getting acknowledged in the industry for the work that we're doing. We're quite often hosting colleagues from the industry. They would like to visit our workshop, learn more about our concepts. Next week, Pehr and I, we're going to Brussels to speak at a conference there, sort of talking about our pole position within this area.
Okay, why have you this position? What is the key to success, so to speak?
Yes. I would like to point out five areas within this. Education is key here, and we've been working with this for a very long time. As I said before, over 6,000 people in our network know how to handle electric cars. We have the assortment, also very important to have in place. We have secured that we have coverage for the 30 most common electric brands that are operating in our market. We have tools, equipment, diagnostic that also crucial to have in place in order to handle new technology. One example how we have developed here is that we hosted an event together with a partner to sort of push our suppliers a little bit within the diagnostic areas because they thought they had everything in place.
It turned out during our test that they didn't, but now we joined forces, we're on track there as well. That could be said about these first three that I just mentioned, that it could also be summarized, don't wait, just do it. Private Label because we are forced to develop our own standards, our own trainings, our own products within private label and so on in order to be in pole position. The last two that we've got, take advantage of our existing strength. We have strong concepts in the market, and that's a good foundation to make change happen. We can implement what's needed into our concepts to be prepared. We have a strong geographical coverage and the strong availability also as an offer.
That makes us a good partner for newcomers, and that's what embrace the change is all about. We see that there is a shift in the traditional market, and especially when it comes to buying cars or new ownership models. These newcomers, new car producers entering our market, they don't have the network, and they need someone to take care of the aftermarket, and we're their perfect partner within that area.
Okay. You mentioned private label, again, I must say, but you said it, as you're forced to produce products within private label. Can you elaborate a bit on that?
Yes. When looking at the bigger suppliers that usually supply us with product, they have a European or sometimes even global perspective on development. Looking at our markets, we're way ahead of Europe and globally when it comes to electrification. It gives us a very good position to actually take the lead on development, and take the position and deliver spare parts with the new technology to the market.
Okay. Pehr, you've had quite a career within the industry, for some time, and it's not the first time the industry is going through a shift. What is your perspective on this shift?
Yeah. Yeah, that's true. I've been through quite a man of these technology shifts, and it's every time it's a new challenges, but there is some similarities each time that we need to educate the workshops. The workshops need to have the, maybe new equipment and so on. Maybe what can mostly be most difficult is also to explain for the car owners that you actually can go to an independent workshop even though it's new technology and so on. What I have experienced sometimes in the past is that the independent aftermarket lose some market shares towards the OEs during the first two years in the technology shifts.
I don't believe that will happen this time because we are doing so many good things, and in many ways are leading, this transformation even, further away than the OEs. This is a great opportunity to actually change that way and actually to gain market shares this time.
Okay. Louise, from your perspective, if you have a look on this shift, what do you see from a sustainability perspective?
I would say what we're already seeing, that business and sustainability are becoming even more linked than before. I would say that it gives the opportunity to really be a more sustainable company, in actual performance. We will also see more directives and legislation in this area, for example, the Corporate Sustainability Reporting Directive.
Okay, thanks. Pehr, Petra mentioned that you have new players coming to the region and they don't have any network and they want to be present here. You have made some agreements with some of these new players. Can you tell us a little about that?
Yeah, we have announced this with VOYAH, Chinese. We also have a collaboration with Fisker, American car, and we have some more of these dialogues also. It's like Petra said, what makes us very interesting for them is that we have a good, very good network. We have the locations, we have the capabilities and the competence, and we also have this geographic footprint, which is very interesting for them.
Okay. let's have a brief look at what is happening in Norway then with your agreement with VOYAH and Electric Way, which is the company that is distributor of VOYAH in Norway. Our colleague, Oskar [Janik], went to Norway and met with Torje Sulland, the CEO of Electric Way.
Norway is one of the most developed countries in the world when it comes to electric vehicles. The amount of EVs keep rising. In 2022, MEKO and Electric Way entered a partnership regarding training, spare parts, and workshop services. Electric Way has the exclusive right to sell and distribute vehicles from the brand VOYAH to the Scandinavian market. Here I am at the VOYAH Experience Center in Oslo to meet Torje Sulland, CEO of Electric Way, and talk about our strong collaboration. Can you tell us a little about Electric Way?
Electric Way is an innovative import company. What we mean by an innovative import company is that we are initially working with tomorrow's customer journeys digitally, while we are actually going to get cars out on the road. Den første bilen heter jo Voya Free, og det er en veldig typisk nordisk bil. Det vi mener med det er at det er en firehjulstrekker som kan, ha en hengerkrok bak som kan dra masse nyttelast.
Torje, hvor kommer det seg at dere valgte å samarbeide med MEKO?
Først og fremst handler det om en trygghet for kundene. MEKO har jo et fantastisk nettverk, rundt i Norge og Sverige og Danmark i og for seg, og Finland, pluss partnere i Baltikum. Den totaliteten gir oss mulighet til å vokse raskere. I tillegg er det veldig viktig for en kunde som skal kjøpe en ny bil, at de har mulighet til å få håndtert service og garantiarbeid. Det er jo selvfølgelig noe som kanskje kan være litt utfordrende å si ja til for et verksted, på grunn av at bilbestanden er lav.
Samtidig, det store nettverket hos MEKO, pluss at vi har ambisjoner om å jobbe med færrest mulig partnere, men som dekker størst del av markedet, hvorpå vi har 1 API i forhold til å kunne møte morgendagens kundereiser på en god måte, både fra kundens app, og samhandling mellom Electric Way og MEKO. Vi ser det på som stor fordel å jobbe med 1 aktør.
Er det bare Norge som gjelder, eller hva er planene?
Nei, for oss så er det alltid viktig å få etablert systemer og rutiner. Norge først.
Hva hennes hen?
Etter Norge kommer de andre nordiske landene. Sverige er jo top of mind, og Danmark i og for seg, veldig nærliggende og Finland det samme. Ønsker fabrikken at vi skal få opp de baltiske landene relativt hurtig, samtidig som Island skal opp på VOYAH-kartet. Det ligger en plan her, og den jobber vi ganske strategisk riktig med. Ønsker vi å ha god framdrift.
Okay, that was a glimpse from Norway and Electric Way. One example of how MEKO is finding new businesses as the transformation continues towards a more sustainable mobility. Louise, you mentioned earlier there's more to do when it comes to MEKO's own footprint environmentally. Can you elaborate a bit on that? Can you hear Louise?
No. No?
Okay.
Okay. We want to increase our efforts, and we have a broad range of activities ongoing. For example, we have a new sustainability strategy, which is based on a recent materiality assessment, which is completely in line with and also supporting our overall business strategy. We start from why, which is to enable safe and sustainable mobility for all. We do that by setting the conditions for better operations, by enabling better workshops and making better mobility happen.
These are three out of four strategic areas?
Yes. we've chosen the ones where we see that we have the greatest impact when it comes to sustainability and also a quite clear value chain connection.
What is MEKO going to do?
Well, to set conditions for better operations, we're going to have climate policy in place. We will be an attractive employer so that we will attract, retain and also activate employees. We shall develop sustainable and circular products as Tobias touched upon, and which I will come back to as well. We will of course ensure that our sourcing is carried out in a responsible way. To enable better workshops, we will reduce our environmental impact. We will lead competence development across our own affiliated and other workshops, as Petra has already talked about today. We will of course make sure that we have equal, inclusive and safe workplaces.
I mean, we have a gender equal management team today, but we are in a male-dominated industry, and we need to attract more women and people of other backgrounds to ensure that we stay competitive as well. To make better mobility happen, we will ensure service to all low emission customers. We will innovate for safe, sustainable and circular car ownership. I mean, we're already doing that today because we're taking care of the cars that are already on the market, as well as adapting to the new emerging technology.
Okay, you've touched upon it, Pehr touched upon it. It's about MEKO's sustainability, keeping good cars, so to speak, on the road. Is there a age limit when it's not good for the environment anymore, that it's better to buy a new car? What is that age? Just curious.
Well, the simple answer is yes. The more complex one is that it depends, and it's not so easy to answer. Of course, it depends on the powertrain that you have. There is a study that came out about a year or two ago from [KVD] and Chalmers that indicated that it was after 11 years that you need to shift, but it depends on the powertrain. If you switch from gasoline to hybrid, then it will probably be lower than 11 years. If you switch from gasoline to gasoline, then that fuel efficiency that you probably have from the newer car might be eaten up by the environmental impact of producing a new one. This is an area that we need to look more into, I would say.
The last one here is to nudge customers towards sustainable solutions and products. From this Mobility Barometer that has already been mentioned, we found out that many car owners don't know how they should have a sustainable car ownership. There, of course, we have an opportunity to offer them our products and services so that we help them doing that.
Okay. We touched upon circularity, how do you define circularity?
If we move back, we first need to look at what is linear economy, which is what we have today. Today we usually take something, we produce something, we use it, and then we dispose of it. When we are talking about a circular economy, it is about using resources in a better way and closing that loop. MEKO is contributing to circular economy today by repairing those resources, cars put on the market, but also through the pro-products and that we put on the market and sell. As Tobias has already mentioned, we're already using, we're offering, parts that are remanufactured or using recycled content as a primary resource.
I think it's not very well known, so we should communicate that more than we do today, and there's also more that we can do in that area.
Okay, how will you proceed?
I'm convinced that there's more that we can do in this area so that we ensure that the products that we sell are perhaps remanufactured or recycled, or using recycled content. We're also going to talk a little bit more about climate. Global warming is one of the biggest challenges that mankind is facing today. It's still possible to reach the Paris Agreement and ensuring that global warming stays under 1.5 degrees, but it's very urgent. Besides contributing to this transition that society is undertaking today by, for example, training our own employees but also others when it comes to electric cars competence, we also need to act within our own operations. That's why we have committed to setting Science-Based Targets within the Science Based Targets initiative.
Okay, maybe not all are that familiar with the details about Science-Based Targets, so what is it?
It's an initiative that drives climate action in the private sector, where companies send in their targets to get them approved to ensure that they are in line with the latest climate science and also with the Paris Agreement. We already have some KPIs when it comes to climate. For example, we have a target that all the electricity in premises where we have the electricity contract should be renewable by 2025. We're also seeing that we also have a new KPI that we should shift our own vehicles or our own company cars and delivery vehicles into more low carbon technologies, such as hybrids or electric or whatever other low carbon technology that may evolve by 2030.
Committing to Science-Based Targets is truly a milestone in MEKO's sustainability work, because we are stepping up our ambitions when it comes to sustainability. Now we have about two years on us to actually set the targets and to get them approved by the Science Based Targets initiative, that work starts now.
Okay, very interesting. Thank you, Louise.
Thank you.
I think we have gone through the agenda. We have gone through the agenda. Now it's time, maybe, Pehr, to summarize. What are your takeaways?
Yeah. The main takeaways from this session is that we are stronger than ever. We have strengthened our position the last couple of years, and we will continue to do so. We have good opportunities in increasing efficiency. We have a very solid foundation to create value, and we now have also communicated financial targets which very much support the strategy going forward. Last but definitely not least, we are investing for the future. We are in the front seat in the transition, and we are having the kind of pole positions and by that also extremely and very inspired to continue this journey.
Okay, excellent. Thank you. It's time for the Q&A session. Please come up, Åsa, Tobias, and Petra. Thank you. We have a microphone somewhere. If you please raise your hands if you have any questions, and we will answer them. Mats?
Yeah. Hi, thank you, Mats Liss. A couple of questions. First, I mean, you mentioned the growth you see in private label, I guess it's something that will probably affect your profitability going forward. On the same theme, if you could say something about... Well, you take a lot of your risks in the private label segment, I guess more responsibility for you as a company. Could you say something how you handle those risks?
Yeah. Maybe if I start. I think that's again, one way of securing rather the margins we're having today. I think in a more competitive landscape, this is a very good way of securing that we keep what we have today rather than maybe even asking for higher gross margins than we have. I think the second one, of course, there will be a huge responsibility. We also have today resources in Asia. We have a local sourcing office, and we also see that we make sure that we follow and monitor that we are having the right factories. We are also of course seeing with the whole global economy here, whether we are to place more in Europe. We do have some of our factories also actually already today in Europe as one.
There might be shifts on where we are producing here. We monitor this all the time and of course need to follow also whole global discussion here in, in the world. I don't know if that's a answer to the question?
Yeah. Thanks. Great. Secondly, about the financial targets. I mean, well, what's the biggest challenge to reach the 10% earnings growth that you expect? Is it sort of internal company specific issues, or is it more related to the market?
Well, it's based on where we stand today and the initiative we have in the four cornerstones in our strategy. I think, Tobias, you mentioned some of them. We have efficiencies gain within the company. We have synergies to take out. We have cost reduction to do. It's I would say it's in our hand to deliver on this target. As I think Pehr mentioned, well, we can look around us right now. It's challenging at the moment, but this is a long-term plan, and I'm very convinced we will reach that target. Of course it will take effort, but we will get there. I'm sure we will get there.
About the gearing, outlook and guidance you gave there that you expect to be within the [2x-3x] target towards the end of the year is sort of a back-end target. I mean, will you reach that during the second half, or is it sort of something that will appear earlier?
Not earlier, but we will reach that second half. We didn't mention that just today, but we are also in the process looking into our real estate that we acquired when we acquired Koivunen. We communicated that when we communicated the acquisition that it's a large part of the acquisition was also real estate in Finland and the Baltics, and we are in the process looking into selling some part of that. Depending on that, it could be earlier, but I can't promise before Q4 this year.
Okay, let me just, I had a question also digitally here.
Mm-hmm.
about the net debt target. With current leverage, how far do you need to come down considering new selective M&As?
Well, our plan is to get down to between [2% and 3%] in the end of this year, and then it's really selective M&As, so it's really depending on what will be on the market. We won't do any M&As before we are back on track.
Okay, that was a clear message. Okay. Do you have any more questions, Mats?
No, thank you.
Okay, back in the end there.
Thank you. Andreas Lundberg, SEB. On the M&A thing, you know, you talk about selective M&As versus M&As included in your growth target. What's the difference, or how do you define a selective M&A?
Larger acquisitions, new market. I mean, what we do in the organic, that's more on, let's say, call it, like, add-on acquisitions. What is not selective M&As, that is typically buying a workshop or a branch, or a company like Avant in Denmark that are kind of adding some products and services and so on. With selective M&As, that is typically Inter-Team, [Afterset] Koivunen, that kind of companies or growth.
If I look at your previous core business, i.e., Mekonomen Sweden and Norway and MECA perhaps generating a margin of some 14% I think in 2015-ish. Last year, MECA/Mekonomen generated below 7%. I know it's a different business mix, and you have included, you know, education, educational costs, et cetera. Also I guess you have benefited from synergies also in those areas. Could you explain the bridge there? What has happened in the last six, seven, eight years? Thank you.
I would say that it's quite far away in history. The 14% that was very extraordinary at that time also. When we look at the competitor, we are still, I would say, by far the most profitable company. I think that there was a couple of years that we shouldn't compare towards. Then more of an average between and the possibilities that plays around. We, as we said today, to be able to grow actually a bit more than the revenue, that will increase the margin year-by-year going forward.
The industry profitability is much lower today than 10 years ago?
Sorry, I didn't-
The industry profitability is much lower today than-
Yeah. Yeah.
eight, 10 years ago. Thank you.
Okay, great. Any more questions? Okay. In the front row here, please.
Stefan Stjernholm, Nordea. Last year was much talk about supply chain challenges. Would you say that that has normalized now, and is... If so, is there a potential to take down inventory?
It has normalized a little bit. It's still challenging, but it's much better than it was last year. If it's on that, if it's safe enough to reduce inventory, I wouldn't say. That also, decisions that should be made in each market, how they see the challenges, because a little bit different suppliers and different products in the different markets. It's better than it was last year, definitely.
Sourcing cost, how they develop. Is there a need for further price increases or?
Well, I think we have to be as compliment, but I think we have little both up and down. Some of the transport costs has actually gone down the last period, but then we still have some inflation in some of the products. I don't know.
Yeah, I can only add to this. I mean, we're monitoring some things looking better here, but of course, other things increasing still in an inflation economy. I think we need constantly monitoring where we are in the market, and that's actually something we're doing already today, making sure that we're having the right pricing in the market. With that said, of course, the sum of the raw materials should come more back than it has earlier as well. Hopefully that will balance well, but we'll monitor the situation.
I can just add that the very strong increase in inventory levels we saw during 2022, we do not expect. There are still perhaps need to keep a higher security level. We also have the now the high inflation increase in the inventories, of course. We don't see what we saw in 2022.
Another topic nowadays is of course, interest rates. Can you please give an update on your interest structure on your loans?
We normally do not talk about exactly how it looks like, even if many of you know because you're from the banks. We have the bond, and we have the long-term loans. We have some hedging when it comes to interest, so I feel safe. We will also reach that covenant towards the banks. We are keeping track on it.
Any more questions from the audience? Okay, we have some questions have been sent in here. One is regarding the competition, as we talked about. What is your view on the online spare parts competition, and what are your plans for e-commerce going forward?
Yeah.
Åsa, maybe you?
Absolutely. We are very much an online company already today. Looking at our sales, more than 90% is going through the online channels. Looking at the pure newcomers, digital first entrants within e-com, they have a different setup and a different price structure connected to that as well. We have historically put the cost for the service level that we offer, it's regarding availability, many deliveries during the days, easy return handling and all that is sort of illustrated on the price of the part. We of course need to develop to be easier to compare to the newcomers and of course also develop our offer to become, in some areas, more like a pure e-com player and take up that competition as well.
Okay. I hope that was an answer that was accepted. Another question, related to heavy vehicles, as you talked about, Petra. What are the margins in this segment compared to the business related to light vehicles? What is the potential going forward?
I would say there is a very large potential because we have only just started this journey and have very, very low market share in each market, even though the growth is significant. Looking at the margins, you could argue that they're a little bit lower, but on the other hand, we are succeeding within heavy vehicles, using our existing facilities. We use the same branches, the same warehouses, et cetera. We're sort of adding on new assortment, being able to handle that in a very efficient way. If we do not increase our cost structure, everything that we put on top is seen on the bottom line.
Okay. Any more questions from the audience? Otherwise, I think I have one here. I don't know if we have answered this.
Yeah. One more.
And do-
One more?
One more.
Okay, great.
Thank you. One of you mentioned glass as an opportunity. What's the status today? What's your, say, go-to-market strategy and how is the, you know, equipment you have, don't have mechanics-
Mm-hmm. Yeah.
... possibility to do this kind of business? Thank you.
May I take that one as well?
Yeah. Go on.
It varies between the different markets on how we are working with glass, because the structure connected to the insurance company also varies between the different markets. There is different business logic. Looking at Denmark, we are very well positioned, and the glass work is often done in an ordinary workshop like the ones we've got. Looking at the products group, we have almost the same market share within glass as we have in other spare part categories. The one thing I mention here is starting in Sweden now, where we have some new agreements, and we have also added the equipment and also the training to be positioned. As some of you may have seen before, we had a tour within training, a big giant truck that visited 24...
27, I think it was, places in Sweden educating within electric vehicles. We are doing the same thing now with glass to increase the competence out there. We're sort of handling it a little bit different between the markets, but we're definitely on it.
Okay. We have another question about supply chain. Supply chain disruption took down new vehicle sales. How do you view this effect on MEKO? I don't know.
I mean, As I said, 35 million cars in our markets. The average age, I would say 10-13 years of age, also in different markets. What happen when the new car sales goes up and down, that gives an impact on the age of the car fleet of those 35 million, which is also increasing year-by-year as Petra showed. Yeah, low new car sales shouldn't be bad for us. Again, it's very few percentage of the change when we look at the total. We normally we say that even if it's a very good year or bad year, that doesn't reflect us that much, but it shouldn't be bad, at least.
Okay, it shouldn't be bad. This might be bad, I don't know, if the EU is discussing a ban on new sales of fossil fuel cars from 2035. How will this affect MEKO?
I think it's connected to what Pehr just said. What we have talked about, we see a shift in the market, and it moving towards electric vehicles, and we're very well prepared. That decision is quite natural 'cause looking at the European car fleet, the average age of a car is approximately 15 years to be... To be ready to 2050, it needs to start at the latest, 2035.
Maybe even more pioneering in Norway, of course, we will have enormous experience if this is happening in mainland Europe and so on. It's also actually an opportunity that we can bring along on our experience in the early adopter markets here.
Hope that was answer to the question. Any more questions from the audience? Otherwise, I think we are quite done here. Thank you very much. I don't know if you want to have any concluding remarks, Pehr.
No, I think we just did. Good questions as always, an interesting discussion. Thank you very much for attending this day, and see you in the future.
Yeah. Thank you very much for all of you that has been here, and also say thank you to the ones that have been watching this online. Thank you.