Meko AB (publ)

Thank you. Good morning everyone and welcome to MECO's presentation of our year-end results for 2024. As said, I'm here with our CFO, Kristi Johansson, and together we will walk you through our performance and current position. 2024 was a year when we continued to build a stronger MECO. We announced these initiatives in November 2023 with a clear goal that we want to become more profitable by achieving more synergies, savings and optimizations. We approached this work from a position of strength. MECO is the market leader in Northern Europe and we strive to be the most comprehensive partner for everyone who drives, repairs and maintains vehicles. We rely on a stable business model adapted to all types of vehicles, regardless of fuel type. Looking back at 2024, we can confirm that our efforts are paying off. We reached the highest adjusted EBIT in our history. Adjusted EBIT was up more than 13% compared to 2023. The improvement has occurred despite costs related to integrating Elite Polska, a milestone in our geographic expansion. We have also secured a strong financial position. Our leverage stands at 2.6, well within our target range. In addition, we improved cash flow, driven by strong results and good working capital development. As planned, we have prioritized profitability over growth, yet we achieved a steady growth of 8%, of which 4% was organic. We have also reduced costs as share of our sales and maintained our gross margin. This development enables the board to propose a dividend of 3.9 SEC per share to be paid into equal installments half in May and half in November. Looking at Q4 in isolation, we conclude that the market conditions varied across the business areas. As I mentioned on the Q3 call a couple of months ago, Q4 tends to be a bit softer, unless there is unusually harsh winter. This time we saw a more typical start to the winter season and in summer this affected our organic growth, which was flat compared to Q4 2023, but in total we grew 6%. We also note a robust EBIT development in the quarter and our adjusted EBIT increased slightly. Christo will go into more details in a few minutes. But before that, I'd like to give you a short update on some of our key projects for 2025. So let's move on to slide 3. As you know, we are in the final stages of completing our new automated central warehouse in Denmark. This facility also houses our Danish headquarters and training centers. In short, it will streamline our goods handling and improve service levels for customers across Denmark. And just to give you a glimpse of the capacity, today an employee can pick 20 to 30 order lines per hour, but a person at the automated picking station can process up to 10 times as many. In addition, we are able to enhance our customer offering, for example through later cutoff times for same day deliveries. The facility is complete and we will receive the keys in the end of this month. And we will then begin the move in process and expect the warehouse to be fully operational in August. We are facing similar important steps in Norway, so let's have a closer look on slide 4. Actually tomorrow we will receive the key to the building, as you see in this picture, our new automated central warehouse outside Oslo. Until now, our Swedish central warehouse in Strängnäs has supplied Norway, but this new logistics center will be dedicated for Norway and significantly improve both service levels and efficiency in the market. The investment into our auto store automation is, as far as we are aware, the largest new build in Norway. We expect approximately 100% overall warehouse productivity gain per warehouse worker with the new system. With this investment, we can house around 100,000 automatically retrieved storage locations. We are also well placed for future growth. Everything is progressing according to plan and we expect the warehouse to be fully operational by June. And then let's move on to slide 5. Our central warehouse in Helsinki has needed renovation and with a new auto store system, we will significantly improve performance. Efficiency has measured by order lines picked per warehouse worker in an hour and is expected to increase by 80%. We have loaded the automation with no less than 65,000 empty bins. Considering weight and space constraints, we foresee up to 70% of the SKUs could pass through the automated workloads. New consolidation area significantly reduces the use of packing materials and ensures services that better meet customer demands. The renovation has gone as planned, even slightly ahead of schedule and the warehouse will start early operations now in Q1. In sum, we are heading into a ventful and intense 2025 and everything is progressing as expected and we are well prepared for the next step. And then let's move on to slide 6 and some positive news about our board of directors. At our extraordinary general meeting in December, Mirko's board was strengthened with two new members. Jörn Werner is an experienced leader with extensive expertise in the independent aftermarket. He has previously served as CEO of major industrial and retail companies and holds several board positions. And then we have Marie Björklund who brings deep financial expertise and is currently the CEO of the publicly listed company Nowit. She has had several similar roles in the past and has also worked as an auditor. We are very pleased to welcome Jörn and Marie to the board and the great valued expertise they are bringing. With that, let's take a closer look at the financials. Thank you.

So as Per described, we saw a somewhat modest quarter closing out a strong year. And in our last earnings call, we mentioned that Q4 is, financially speaking, seldom the strongest quarter. That was true in 2023 where we had some help from proper winter. And it's also true for 2024, which has been warmer. In combination with many days off or partly off, Q4 was sales wise an uphill battle. This comes through in the weak organic growth, which was well below our 5% target. In isolation, a single quarter is easily affected by specific items. In Q4 2023, we provisioned for large changes in Norway, explaining the low EBIT in that comparison period. This year, Q4 was burdened by updated assessments of full year tax, explaining the low EPS. Now, on a full year basis, the effective tax rate was 25%, which is a bit above the 23% we expect going forward. There are signs of strength in Q4, as I will illustrate in more detail in a minute. Growth margins improved. We are also pleased to see healthy cash flow where working capital continue to be relatively helpful. Looking at the year as a whole, we see a development which is well aligned to our financial targets. Organic growth was close to 5% up. Adjusted EBIT increased by 13% versus our target of 10. This increase was also converting into cash flow, which was up by 10%. That in turn helped leverage and dividends, both matching the targets we have committed to. Turning to page 8, gross margins has had a positive development in 2024. This is despite incorporating the business of the elite, which on its own correspond to a dilution of almost a percentage point. Mix and currency effects were modest and the improvement is stemming from price adjustments. I would want to add two observations here on this note. Firstly, price adjustments include benefits coming from improved purchasing. Improved purchasing is quite an important area, of course, and ultimately it's an enabler of organic growth. Secondly, the average development hides significant variation by market. In fact, moving on to the next page, page 9, this page shows the adjusted EBIT bridge and the development in Poland, which is a negative outlier, is in part linked to pricing. I will get back to more details on Poland in a later page. Finland is mostly a matter of a weak comparison period, but for Sweden and Norway, the improvement is certainly both real and quite encouraging. And this is primarily the result of

cost savings across both Norway and Sweden. Turning to page 10 and leverage, the picture is similar to

previous quarters. I mentioned earlier that Q4 is typically not the strongest quarter and that season trend is true also for cash flow, in fact. In addition there to it's worth noting that in Q4 we have paid dividends of SEK 104 million. And we have been running with a fairly high investment rates, 84 million SEK worth of capex in the quarter, with 27 million SEK of non-capitalized investments into our ERP program on top. So this, when you add it together, is above what I would view as a normal level. Still looking at the full year, we have reduced net debt by 400 million SEK. This is a number that would exclude IFR 16 lease liabilities. So naturally reducing debt lowers interest expense. But there are also other factors at play here. This becomes visible on page 11, which compares interest expense reduced by interest income between 2023 and 2024. We spoke about net debt being reduced and I believe no one will have missed interest rates coming down, although I should mention that we hedge a fair share of our financing to avoid any unpleasant swings. Finally, lease agreements, as accounted for under IFR 16, also come with an interest expense component. Lease have grown and they have offset reductions from the first two items. Looking ahead into 2025, one should in simple terms expect more of the same. Lower net debt, somewhat lower net interest rates, which in turn will be offset by increased lease liabilities. As reiterated a few times, our facilities in Denmark and Norway are not capex on our balance sheet. But as we move in during the first half of 2025, we will recognize new lease liabilities. These are fairly long contracts, as you can imagine, and we will add up towards a billion SEK in lease liabilities. By extension, this will also increase the IFR 16 interest component by approximately 60 million SEK on an annual basis. Let's now also have a quick look at key financials by business area, starting with Denmark on page 12. The challenging seasonal effects already mentioned were clear in Denmark and this contributed to a quarterly result, which was not quite up to our expectations. While it's slightly better on a full year basis, it's also clear that we need to pursue further efficiency improvements. Automation is one, but it's not the only avenue. On the bright

side, gross margins improved noticeably in Denmark during the year. Turning to

Finland on page 13, I already mentioned that the comparison quarter is a special one. Better than to look at the run rate in absolute terms, and this level is of course not an acceptable one, not even during the soft macro conditions like the ones we've currently seen in Finland. This is also the reason why we have significant efficiency improvements underway. And I believe the photos shared earlier show that we have come a long way, even though we are yet to reap any significant benefits. With regards to Poland on page 14, the comparison is naturally affected by the inclusion of Elite Polska, which is running at a loss, as you know. This is as planned, and you may recall the massive discount which materialized into a negative goodwill of 176 million SEK in Q3. Furthermore, we described in the Q3 earnings call how the integration work will continue throughout 2025 at a total cost of 70 to 100 million SEK. In Q4, we spent a 15 million SEK of this, with three quarters being capex, mostly related to IT, so servers, firewalls, things like that. The integration work continues at full speed, now focusing both at branch level and headquarter. Separately, as mentioned earlier in this call, conditions in Poland are tough. This includes price pressure, inflation, and reduced exports. We see this also in our pre-existing business, Interteam. All in all, these conditions also pave the way

for continued consolidation in Poland, and we will be part of that. Business area Sweden and Norway on page 15

was not immune to the broader market condition in the fourth quarter, but has nevertheless performed very well in 2024. As communicated, we have prioritized restoring profitability, and we are proud to deliver a 50-plus percent increase in adjusted EBIT both in the quarter and the full year. Of course, with such a profitable business, we are keen to see continued growth in the years ahead, and this is why we now invest into the new warehouse in Norway. As Padre mentioned, this will free up capacity also in Sweden, since Sängnäs is currently serving both markets. Finally, on page 16, we illustrate the strong performance of business area Sörnäs and Avarsken. Unlike in some of the other business areas, 2024 has been a year with full focus on customers, operations, and incremental improvement. It's perhaps not surprising, but indeed encouraging to see this focus paying off. Healthy organic growth, sales exceeding a billion SEK for the first time, and equally important, the strong margins have been maintained. So on that happy note, I leave it back to you, Padre. Thank you, Krister.

Well, to sum it up, we reached the highest adjusted operating profit in our history in 2024. The current average of adjusted EBIT was up more than 13% compared to 2023. This improvement has occurred despite costs related to integrating Elite Polska, a milestone in our geographic expansion. We have also secured a strong financial position. Our leverage stands at 2.6, well within our target range. In addition, we have improved our cash flow, driven by strong results and good work in capital development. And as planned, we have prioritized profitability over growth, yet we have achieved a steady growth of 8%, of which 4% was organic. We have also reduced costs as share of sales and maintained our gross margin. This development enables the board to propose a dividend of 3.9 SEK per share to be paid in two installments during 2025. 2025 will be an eventful and intense year and we are well prepared. So that will be all for me. Thank you for listening. And now we will open up for questions.

The next question comes from Matt's List from Kepler Shoevro. Please go ahead.

Yeah, hi. Thank you. A couple of questions. Well, first, I mean, you have all these measures that you implement moving from two more sort of efficient logistical chain. And I guess Norway is on their way and Denmark and Finland is starting up now. What will the impact be sort of during the first half of the year? I mean, they will be fully implemented this year whereas this mid-year sort of. And will there be some extra cost here in the first half to move from one to the other?

Good morning, Matt. Good question. So I think as we've mentioned in one of the previous calls, this process of moving into a new facility is of course not something that happens overnight. And in simplified terms, you can think of this as a six month process. So from starting one to leaving the other is like a six month period. During that period, we will have some double rents. We've not specified exactly how much. We will make sure that this is clear in the communication in quarters to come. There are also some costs associated with moving goods, but this is not massive. In terms of project costs, I mean, these are not very material. If you look at the previous quarters, you will see that we have identified some such costs, but these are single digit million SEK. So that's not very material. Other than that, of course, I mean, we are planning for uninterrupted operations. So we're moving kind of slow in a sense in order to make sure that there are no disruptions to

operations. What do you want to add? No, I think that covers the question.

Sounds good. And I guess you will have sort of opportunities going forward to reduce indentures when you are fully up and running and can sort of rely that you are able to supply your customers well with the new facilities.

Yeah, you're completely right. And then it's both when we will when it's all done, we will have more optimized inventory, I would say. If it's lower, then that's another discussion, but it will be more optimized for each market. And with that, also, we can have a better availability and, of course, converting to better sales.

And then secondly, on sales there, I mean, you mentioned the impact of Well, in Norway, you have moved through to a more sort of more business oriented distribution structure and you have done some consumer related sales there. Was that fully impacting you in the fourth quarter? Are there sort of more effects in the first quarter and second this year?

Well, it's a good question. I don't think I have the exact answer when we because this project was gradually implemented during the year. So I think that you will see maybe some negative impact in the in the beginning of the year, maybe, but it shouldn't be much. So it's the big hit you have seen in Q4. And there is also things now where we can improve, start to get the benefits so that we actually improve the availability. So we also expect some recovery in those projects.

And I mean, consumer, the consumer segment is quite limited. So I mean, but would you say that you keep your market share in the business to business segment?

Yeah, yeah. And we, the decrease in sales is more that our customers buy a little bit less because we have been converting warehouses new numbers and it's catalogs. But all those things start to be in place now. So we didn't lose any customers.

Okay, great. And, yeah, and then the pricing here, I mean, previously, you have been able to, I mean, the Swedish kronor is somewhat soft, have been for a while. And I guess that and most of the kronor are made in euros. So, yeah, are there any sort of impact there for you starting 2025?

I think we have a gross margin, which is stable now. And I think we are well priced to the current currency. Of course, if we get much worse, then we will be in a situation that we might need to increase prices and so on. But we, I would say that we are on a stable level at the moment.

And finally, just, well, in the text line there, you had some catch up to be done due to, well, somewhat underestimated tech shots it's produced during the year. Could you give some sort of indication of the running level or whatever we should expect for 2025?

Yeah, no, of course, in this sense, Q4 is quite an outlier. And there's been, as you know, a few odd transactions in the year with impairments and goodwill and whatnot. And this is why the kind of the prioritization of tax is not, in the previous quarter, has not been kind of at the level of the full year effective tax rate. So where we ended up for 2024 was an effective tax rate of 25%. That's obviously high. If we look into the future, we do not expect the level that high. We think a fair reflection of future periods

would be closer to 23%. Okay, great. Thank you. Thank

you. Yeah, and then we have some questions from the chat. Did you say the extra costs in the common court related as the new rent up? The question is if we expect an extra cost in the common court related to the new warehouses. And we don't, not as we see at the moment, because we are doing this according to the plan and according to the business cases. So let's continue with that view as soon as possible. We don't expect anything to pop up. And then there was another question also from Stefan. Do you expect the relatively mild winter in Nordic this year to have a negative impact on sales also in Q1? That's a good question. As we saw in Q4, when it's extremely good winters, we have a boost in sales, which was the case last winter. But we also try to mitigate that with other products and other services. So we're not guiding specifically for Q1.

The next question comes from Andreas Lundberg from SEB. Please go ahead.

Yeah, good morning and thank you for taking my questions. Starting with Sweden and Norway, where you've seen just upon that large efficiency gains. Can you update me or us on the status on the first of the efforts? Where are we there? And what else do you see in Sweden and Norway when we move into 2025? Thank you.

I mean, we have done a lot. It's mostly the fact is mostly so far in Sweden where we have reduced costs is efficiency. Of course, with the new logistics set up, we will be able to grow more in both countries. We will have a possibility for Norway to have a better local assortment, which will be helpful for that business. And then we, I mean, in Norway, it was the big project with merging a lot of branches and that projects are less closed. So I don't expect anything more, but we will continue. The idea of building a stronger maker is not to be ready to continue. So we will search for more and more.

What would you say that if 2074 was mainly about efficiency gains, it's more about sales growth in Sweden and Norway when we move forward?

Yeah, I think it will be a mix of both. There are still areas to look at, often on efficiency, but maybe a little bit more focus on the

market.

Okay, cool. And also, can you update me on the Polish business? I think you did that last quarter, two quarters ago, and the effects from the acquisition. I wish you see that in 2025.

Yeah, but as we said, it will be cost related to the integration and part of that, we, 50 million or something we had in the Q4, we said that it will cost in total 70 to 100 and that is what we still expect. And it will take at least this full year until we are complete with that integration.

But you also said that there is underlying development in the acquired unit. Can you update me on that?

Yeah,

it was loss making and it still is, but that's also part of the integration is close to branch which is not performing, merge with existing branches. Yes, so that is the part of the work is profitable. Then Poland has at the moment, last year, it's been tough due to competition. I would say both our entities, both Elite Poland and EMEA, it's more or less keeping the market shares locally. Then we have the export business, a little bit up and down from

time to time. And

on Finland, you have done a lot there over the past years here. What remains to be done? Should we do some kind of recovery or relief there?

Definitely. They are one of the first warehouse projects that will be live, at least starting the operation. We will see if they are also fully operational, but they will start already now in the next coming weeks. So that is a very important part of the efficiency, but we still have all the people who are running it manually, but they will be released here during the spring. So that's one area. Then we also have worked with reorganization and I would say this year also we will increase the effort to gain multi-person.

Lastly on the warehouses, I think you touched upon it, but is it fair to assume that you will run double warehouses in 2025 basically?

Not for the full year, but you could expect that there would be six months of overlap and during that period there will be some double rent. We will do our best to be clear with these impacts in the quarters to come. But of course the reason for moving quite slow is to not interrupt

operations, which is priority number one here. Cool,

thank you so much.

Great, and then we have a question from Johan on Motomagazinet. You have invested in one shop concept with tires and glass in addition to service and repairs. Are there any other areas you see value in focusing in the close future? Yes, we do that and there is a big difference in the different business areas and the markets, so we try to use best practice in order to that. Exactly which area and when. I will keep that as a surprise for our competitors.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Okay, thank you all for listening.