Meko AB (publ)

Thank you. Good morning everyone and welcome to Mirko's third quarter result presentation. I'm here with our CFO Chris Ljubansson and together we'll talk you through our performance and current position. We often say that our business model is resilient. There's always stable demand for cars that function properly. Compared to other industries we are largely buffered from economic fluctuations even though we still feel their impact. Our experience so far shows that our business hasn't been fundamentally affected by technological shifts if we adapt to the changes. As we all know the electric vehicle transformation has slowed but it won't stop. We've been in Norway for a long time, the country where the transformation is the most advanced. We're still in the early stages of this shift and electric vehicles continue to evolve. However, our experience in Norway suggests that the total repair cost over electric cars lifetime seems to be quite comparable to those for gasoline and diesel cars. We are putting a significant effort into staying at the forefront of this transformation adapting our offerings. In other words, Mirko's role shall remain the same. We aim to be the most complete partner for everyone who drives, maintains, or repair vehicles in Northern Europe. We're committed to doing this at the same time as we continue our efforts to become a stronger and more profitable company. Looking at Q3 I see that we are on track to achieve what we are set out to do. Let's move to slide two. We're seeing a mixed conditions. Sweden and Norway are showing strength while Denmark is somewhat softer. In Finland the demand is weaker and in Poland the competition remains intense. This quarter we integrated Elite Polska into Mirko. In total we reached a growth of 7% with 2% organic growth. I'm especially pleased with the strong progress in Sweden and Norway business area. Prices increases helped drive up the gross margin this quarter and we are improving efficiency. In short, we are continuing to strengthen our underlying profitability according to plan. We raised our adjusted EBIT margin compared to the same quarter last year and our EBIT also improved. The large increase in EBIT is mainly due to accounting effects related to the Elite Polska acquisition. Chris will go into details on this in a few minutes. It's also encouraging that we are maintaining a solid financial position where our leverage level is right in our target range. This puts us in a good position as we enter the fourth quarter which usually by season is a little bit softer. We've kept we certainly kept up a high pace this year and expect an intense year ahead. We are preparing for the launch of several new warehouses in 2025, an important part of our initiative building a strong Mirko. Let's have a closer look on slide three. During this year we've been preparing for the launch of the new center warehouses in Norway, Denmark and Poland by 2025. We have also been working on the renovation of our central warehouse in Finland. In total these are major projects in four of our eight markets and they are progressing according to plan. To highlight one example the project in Denmark is now more than 80 percent complete. This high-tech facility will combine central and regional warehouse offices, administration and the training academy located in the heart of Denmark. This center like the others will provide us with more efficiency, efficient inventory management and improved service for our customers. So 2025 will be an intense and challenging year but it will also mark a significant leap forward for us. Now let's move on to slide four and the positive announcement we made this morning. I'm very pleased that we are now seeing recognition for our sustainability work. For the first time we have been awarded the highest ESG rating, AAA by Morgan Stanley Capital International. Only 11 percent of comparable companies worldwide achieve this level. This upgrade is driven in part by our dedicated effort in employee relations and in corporate governance which is considered to be well aligned with investor interests. We work broadly with sustainability and have raised our ambitions in recent years. There's still much to be done but this recognition inspires us to keep moving in the right direction. Before we go into details on our financial I'd like to briefly highlight an important part of development efforts. So let's take a look at slide five. As I mentioned earlier we always stay focused on adapting to technology changes and evolving consumer behavior. Stay ahead we conduct the mobility barometer every year, the most comprehensive study in order to tracking mobility habits. The latest edition was released in the third quarter and relieved many interesting results and let me highlight just two of them. First the car remains the clear number one mode of transportation for all groups in society. Despite tough economic times car users has remained at the same level in 2023. Nearly eight out of ten people use their car at least once a week. Second a clear majority believe that the car will continue to play major role in the future. 62 percent hold this view which is the highest number since we started the survey three years ago. So now let's take a closer look at the key event from third quarter the integration of elite Polska. So over to you Christian.

Thank you Per. So as mentioned already in the Q2 report we are consolidating elite from August 1st and this added around 50 branches, two warehouses and 480 colleagues to the end of Q3 numbers and this operation is now run under joint leadership across inter-team and elite. Financially speaking the acquisition added circa 220 million set of in two months or roughly 1.2 billion on a full year basis. However gross margins are lower in Poland and hence this acquisition is diluted to gross margins for the group. The impact here from was 0.7 percentage point in Q3 or just north of one percentage point on a run rate basis. As communicated all along, purchased price was very low despite significant assets changing hands and the reason is that the company has been operating with a loss and there is a restructuring need. That situation which is a bit unusual comes with a few accounting effects that I would like to comment upon on the next page. So essentially this is a very important point. We have three separate financial effects directly or indirectly linked to the transaction. To start the purchase price was far below the fair value of assets within elite and this comes with negative goodwill which is unwinding through the P&L in Q3. That item which amounted to positive 176 million set is part of other operating revenue in the quarter. Separately the acquisition changes many aspects of Mirko's business in the Poland-Baltic business area. In light of this triggering event we have conducted an impairment test on the 401 million set write down of intangibles mainly goodwill. After this impairment there is essentially no remaining goodwill relating to the Poland-Baltic business area. Both these acquisition related items are excluded when we present adjusted EBIT. So while they increase reported EBIT by a net 75 million set they have no impact on adjusted EBIT. Finally I said earlier that the price was below fair value of assets for a reason and this reason is that there is anticipated costs for restructuring integration of the two entities. These costs the dashed bar here sit in future period so they have not been incurred nor for in Q3. We estimate them to be in the range of 70 to 100 million SEK and we expect that to be incurred during the rest of 2024 and 2025. In the context of those costs I also wish to point out that elite at the time of acquisition had 123 million SEK of cash so in practice you can say that this restriction is pre-financed before we leave the topic of elite let's just recap the strategic rationale. Eight so the Polish market is large but our share is small hence this represents a major long-term growth opportunity for me echo it's also so that elites store network in Poland has a good geographic fit in fact we were considering to establish warehouses in areas where the we can now instead tap into elites existing infrastructure so clearly this is faster it's cheaper and it reduces future investment need by combining the best of these two companies we will become a more relevant participant in the market so with that let's move into overall finances page nine Looking at the underlying financial development we are fairly satisfied with the development in the third quarter and to pick out a few things that sales continue to grow at the healthy rate seven percent on the one hand organic growth was slower two percent on the other hand there was a full contribution to top line from acquisitions as we will come back to on a later page gross margins improve and that is pleasing of course also considering that growth in a low margin market like Poland is pushing in the opposite direction what helped from better gross margins adjusted the average margin also grew from 6.9 to 7.2 and if we were to exclude the impact from elites ongoing business adjusted the margin grew from 6.9 to 7.7 so broadly speaking at one percentage point uplift year over year much in line with the midterm improvement potential we guided on in the Q4 earnings call our financial may recall is to grow adjusted a bit at the rate of 10 percent and we are delivering on this both in the quarter and the year to date looking at cash flow from operating activities this has been strong in 2024 on top of improving profitability we have had support from reduced working capital in q3 specifically that was not the case and we have instead been stocking up a bit ahead of the important winter season lastly when it comes to reported a bit i've already described in some detail how events in poland had a positive net effect with an offset in the form of future integration cost it makes sense to also mention that our business system rollout continues at a pace and that will continue throughout 2025 and 2026 furthermore i should also mention that q3 2023 contained a 37 million profit from sales of real estate in denmark looking at gross margins on page 10 the improvement is clear and stand in contrast to recent years so this is not currency and this is not mixed effects this is due to actions that we have taken within pricing and procurement and on procurement specifically we can see that our increasing scale matters in global tenders as already mentioned were it not for the inclusion of elite the improvement would have been 0.7 percentage points higher moving to page 11 and the adjusted inf bridge so it's pleasing of course to see a total growth of 10 but there's no denying that this was unevenly spread sweden norway and serenzen and valken was strong in q2 and remain strong in q3 finland is improving but from a very low level poland is of course affected by the ongoing business within elite which is running at the loss moving on to page 12 in our financial position so this remains strong net debt now stand at 2.4 billion cf compared to 2.9 a year ago we can also see this on net interest expense which is down 14 percent compared to a year ago and this quarter alone we amortize loans by 300 million cf leverage expressed as net debt to evda is at 2.5 if you leave the positive one off out which we believe one should on a reported basis leverage comes out even lower this stronger position also bring flexibility and to put this into perspective one can mention that meco's available cash and 2.4 billion cf at the end of the quarter adjusting for dividends which we will pay and to extend it's still 2.3 billion cf so with that said on the totality let's have a brief look at the various markets starting with denmark on page 13 in denmark we have directed both attention and money towards developing the organization and getting ready for the upcoming warehouse move and in the midst of this internal work our performance was not quite up to last year's the comparison period benefited from a real estate game as i mentioned but we also note that the market has been somewhat slower this fall compared to last year and as we've mentioned before denmark is a very competitive market but obviously price is not the only component of customer offering by working on all parts we strive to defend our gross margins which actually improved in the quarter turning to finland on page 14 we note that the macro environment remained weak this had an effect on sales which was down four percent on the year earlier now despite this our financial performance actually improved but from low levels contributing factors here include extended participation in group supplier agreements and nevertheless this is certainly not a level that we are content with so a long way to go but we note that several initiatives have been set in motion and this goes beyond what has hit the numbers at this point next page in poland and the vortex the development is somewhat divergent in the vortex which is the smaller parts the development is broadly speaking okay and we've also conducted a smaller acquisition out to my stirr poland on the other hand is struggling with tougher market conditions we've mentioned runaway salary inflation before another less known aspect is a slowdown of exports from poland into other european markets which in our industry is not insignificant and it comes to the elite transaction we've already covered this i will not repeat it here but we can note that poland vortex is now actually our second biggest business area after only sweden and norway furthermore one can note that elite is diluted to margins also in the business area without the business area we would have seen adjusted average margins of three percent compared to 3.7 percent in the previous year moving to page 16 sweden and norway performed very well as i mentioned five percent sales growth is good but perhaps the real achievement here is the higher margin 13.2 percent is strong it's in fact stronger than we've seen in years and there are no large exceptional items involved as such this comes down to pricing and efficiency at the same time i don't view this margin that will last a new normal finally then sweden's an embalmed on page 17 and this is our smallest business area but only if we measure on revenue because in fact due to the attractive margins it's a very meaningful contribution to adjusted evict this business area is also growing and that has been one of the factors behind our decision to build a new combined central warehouse in norway and for saran shanabhakram the upcoming move will take place in 2026 so with that i

hand back to pat thank you grister well to sum up we have just completed a strong quarter we improved probability solidified our financial position and begun the integration of the post-gold strategic milestone price increases helped drive up our gross margin this quarter and we are improving efficiency in short we are continuing to strengthen our underlining per probability which is completely according to plan it's also encouraging that we are maintaining a solid financial position where our leverage the leverage level is right in our target range this put us in a good position as we enter the fourth quarter which is typically a bit slower seasonally but we are indeed maintaining a high tempo with a tense year ahead we're preparing for the launch of several new warehouses 2025 an important part of our initiative building a strong America so that would be all for me thank you for listening and now we will open up for questions

if you wish to ask a question please dial pound key five on your telephone keypad to enter the queue if you wish to withdraw your question please dial pound six on your telephone keypad we would also kindly ask you to please mute yourself after you have asked your question next question comes from Matt's list from Kepler Chevro please go ahead

yeah hi thank you and congrats on a good quarter a couple of questions here first well starting with cash flow i guess it's a pretty good number but the working capital is some of the sort of improvement or cash flow is this an impact of the work you do in upgrading the inventories i mean do you need to have double units and it sort of have an impact and we should expect that to to to continue going forward i mean you are having five projects start well to be implemented next year if i heard you right

well i would say that the the inventory level is more of a seasonal effect that we're building up for the winter season and but you are right that we we i don't think you should expect that it will go down because we need also to have some offer when we enter into the warehouse project so looking forward this this level more likely will be be stable i would i would guess

thank you and regarding this integration process in in so i guess it's not not too much to to add there but going forward then do you see the polish market as well integrated fully or i mean do you see more acquisitions to be to to be done in that market to strengthen further or fully invested there

i would say that those polish still need consolidation and so there will be m&a activities in the market in in in in what way we will be part of that in the future we'll see we'll focus now on the integration within the polska and when that is done then we will have a new situation and look further but it will be more consolation in the polish market definitely the next coming two three years i would guess then

what you mentioned the pricing increases or or what did you have support there in sweden norway especially do will this sort of continue going forward or are you sort of in a change i mean it's probably a mixed change also it's not only price increases could could you well give some more color on that

yeah but i think that it's uh i mean we we had uh the last couple of years a little bit uh difficulty to to increase prices enough to cover for inflation especially for the currency effects in in sweden norway and and and that has stabilized and so kind of balanced out i don't see that there is much room for price increases that's that's more of what what's happening in the competition area we continue in this gross market improvement there is also uh purchasing prices which is a part of that when we see that we probably can use even more of the size and scale which we have so that work will continue it will be seen further on how much effect we can have that but we we're working quite intense with with the purchasing part as well

okay great thanks a lot

yeah thank

you the next question comes from andreas lundberg from s eb please go ahead

uh yeah good morning thank you for taking my question andreas here from s eb if i start with the four plan new warehouses for next year how do you make sure you can run your business without any meaningful disruptions or interruptions

yeah it's it's complicated but first of all it's four very separate projects so they are connected to each other which means that there is local project organization and local plans and then what we're doing is to to build up let's say plans for every there will be some disservices in in logistics in one of the warehouse projects meaning that we will help from some other area we will probably be able to use sweden as stainless if there will be some disturbances so we have a couple of plan b and c so try to cover as much as possible from that okay

got you and how will these launches you know be spread during 2025 okay it's

actually quite the same time

or is it different

it's quite concentrated i think they are a april march may june those four months as it's one one launch each month if everything i mean these plans is not still not yet the kind of hammered in stone there's still that they can move but during the spring and beginning of summer we have most of the activities and

of course they are they they do not happen overnight as we can imagine so there is an overlap between the old warehouse and the new one and it's in the range of six months

okay got you

and maybe you can talk a little bit about the status of your various efficiency programs

yeah but we have we've talked about especially we have the the big race that's a distribution program in norway where we now i have a couple of few branches still to be merged but we start to be in the end of that so more let's check on that then we announced this more cost saving program in sweden over this million i would say that that is mostly done even though we always search for more we did the reorganization in denmark in the spring and we're looking for more efficient food programs in denmark and not at least connected to the to the new project in denmark when we are on the other side of that but we've got more and more it continues with a lot of activities

yeah have you seen any effects so far with that still to come

we have seen some effects yes but there is probably not 100 percent in the in the pnl yet

okay

and also lastly i think maybe you mentioned it but i have to to to make sure you said size and scale is are the things to drive the gross mornings from here

yeah and we we're doing a little bit let's say a retake on the on the prioritization strategy where we have seen that there probably will be some opportunities to to get even better conditions i

think what i can add is if you if you look at finland in the quarter one of the contributing factors was participating in group agreements that was already in place so it's also so that we have a lot more to do in terms of really realizing the benefit of what's in place

yeah the final one actually on finland you i think you mentioned some extraordinary cost also in the third quarter but you didn't quantify it could you do that or

so there's nothing that's material enough to to kind of warrant uh item effecting comparability adjustment what we are doing is we're kind of cleaning up a little bit on items which some of them relate back to the operations we had in mekonom and company years

ago right okay thank you so much guys

yeah

as a reminder if you wish to ask a question please dial pound key five on your telephone keypad and then we'll answer your question there are no more questions at this time so i hand the conference back to the speakers for any closing comments

yeah thank you all for listening and that would be all for us so i wish you a very very nice day thank you

thank you