Meko AB (publ)

Thank you. Good morning, everyone, and welcome to MEKO's presentation of our year-end results for 2024. As I said, I'm here with our CFO, Christer Johansson, and together we will walk you through our performance and current position. 2024 was a year when we continued to build a stronger MEKO. We announced these initiatives in November 23 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. Meaqo 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 air bit in our history. Adjusted air bit was up more than 13% compared to 23%. 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. And 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 an unusually harsh winter. This time, we saw a more typical start to the winter season, and in the 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. And Krister will go into more details just 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 three. And 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 cut-off times for same-day deliveries. The facility is complete and 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 four. Actually, tomorrow we will receive the key to the building, as you see, the building 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 out of 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 five. 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 workflows. 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 an eventful and intense 2025, and everything is progressing as expected, and we are well prepared for the next step. And then let's move to slide six and some positive news about our board of directors. And at our extraordinary general meeting in December, Merco's board was strengthened with two new members. Jörn Werner is an experienced leader with extensive expertise in the independent automotive 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 CFO of the publicly listed company Knowit. She has had several similar roles in the past and has also worked as an auditor. We're very pleased to welcome Jørn 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 week 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. Gross margins improved. And 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. And 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 eight, gross margins has had a positive development in 2024. And this is despite incorporating the business of 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 observation here on this note. So firstly, price adjustments include benefits coming from improved purchasing. And the 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 nine, 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 week 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 seasonal trend is true also for cash flow, in fact. In addition there too, 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, say, 400 million SEK. Leverage is now at 2.6, or a bit lower if you adopt the bank covenant definition, which 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 IFRS 16 also come with an interest expense component. These 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 SEAC in lease liabilities. By extension, this will also increase the IFRS 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're currently seeing 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 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 circa 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 entities.

All in all, these conditions also pave 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. 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 Per mentioned, this will free up capacity also in Sweden, since Zengnäs is currently serving both markets. Finally, on page 16, we illustrate the strong performance of business area Sørensen & Varsén. And unlike in some of the other business areas, 2024 has been a year with full focus on customers, operations and incremental improvement. And 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, Per. Thank you, Krister.

Well, to sum it up, we reached the highest adjusted operating profit in our history in 2024. Adjusted EBIT was up more than 13% compared to 23%. 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 stronger results and good working 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 a share of sales and maintain our gross margin. This development enables the board to propose a dividend of 3.9 SEC per share to be paid in two installments during 2025. 25 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.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. After your question, please mute your phone. The next question comes from Mats Liss from Kepler Chouvreau. 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 to a 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 during the first half of the year? I mean, they may be fully implemented, this new warehouse, this mid-year. Will there be some extra costs here in the first half to move from one to the other?

Good morning, Mats. 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 cost, 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.

Per, what do you want to add? No, I think that covers the question.

Sounds good. I guess you will have sort of opportunities going forward to reduce inventories 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 that is 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 things.

And then secondly, on sales there, I mean, you mentioned the impact of Well, in Norway where you have moved through to a more business-oriented distribution structure and you have got 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 of 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 beginning of the year, maybe, but it shouldn't be much. So it's, I mean, 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 some recovery in 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, let's say the decrease in sales is more that our customers buy a little bit less because we have been converting warehouses, new numbers and its catalogs. But all those things starts to be in place now. We didn't lose any customers.

okay great and yeah and then well pricing here I mean previously you have been able to I mean the Swedish krona is somewhat soft have been for a while and I guess that and most of your krona are made in euros 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 it will get much worse then we will be in a situation that we might need to increase prices and so on. But I would say that we're unstable level at the moment.

And finally, just in the text line there, you had some catch-ups to be done due to somewhat underestimated tech charges previously during the year. Could you give some sort of indication what the running level or what level 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 periodization of tax 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 a level that high. We think a fair reflection of future periods would be closer to 23%.

Okay, great. Thank you.

Thank you. Then we have some questions from the chat. The question is if we expect an extra cost in the coming quarters related to the new warehouses. and not as we see at the moment, because we are doing this according to the food plan and according to the business cases. So let's continue with that view as long as possible. But 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 the Nordics this year to have a negative impact on sales also in Q1? 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, first of all, that large efficiency gains. Can you update me or us on the status on the first of the efforts? Where are you 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. The effect is mostly so far in Sweden, where we have reduced costs efficiency. Of course, with the new logistics setup, 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. uh and then we i mean in norway it was the big project with merging lots of branches and that that project was closed uh so i don't expect any anything more but we will continue uh the the the idea of building a stronger maker is uh uh not to be ready to continue so uh we will we will search for more and more

Would you say that if 2024 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 is still an area to look at cost and efficiency, but maybe a little bit more focused 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 on the acquisition. How would you see that in 2025?

Yeah, but as we said, there will be costs related to the integration. And part of that, we think 15 million or something we have 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 the underlying development in the acquired unit, can you update me on that?

yeah it's i mean it was it was lost making and it still is uh but that's also part of the integration is close to branch which is not performing in a merge with the existing branches uh so so that is the part of the this work is to uh profitable again then then polar has at the moment uh last year at least been tough uh due to competition I would say both our entities, EliteVolta and E-Maze is more or less keeping the market shares locally.

Then we have the export business up and down from time to time.

Okay.

And on Finland, I've done a lot there over the past years here. what remains to be done or should be some kind of recovery or relief?

Definitely. They are actually one of the first warehouse projects that will be live, at least starting the operation. We'll see if they are fully operational, but they will start already now. in the next coming weeks. So that is a very important part of 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 market first.

And 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, in a few months perhaps. 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 in the chat, we have a question from Johan on Motormagazinet. You have invested in one-stop shop concept with tires and glass in addition to service repairs. Are there any other areas you see value in focusing in the close future? Yes, we do that. And there is big difference in the different business areas and the markets. So we try to use best practice in order to do 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 and