Meko AB (publ)

Welcome to the MECO Q1 Report 2025 presentation. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the speakers president and CEO, Per Oskerson and CFO, Krister Johansson. Please go ahead.

Thank you. Good morning everyone. Welcome to MECO's presentation of our results for the first quarter 2025. As I said, I'm here with the CFO, Krister Johansson and together we'll walk you through our performance and current position. Unlike many other industries, we see stable underlying demand driven by the constant need to service and repair vehicles. The car remains an essential part of the daily life for most people and when car when repairs are needed, they tend to prioritize them. MECO's aim is to meet this need. We want to be the most comprehensive partner for all who drive, repair and maintain vehicles in Northern Europe. And today we are the market leader. However, we're not entirely unaffected by international turbulence. In Q1, our markets was cautious with concerns about a prolonged economic downturn. Total growth was 6% and the organic growth was slightly negative. Despite this, we managed to defend our gross margin through price adjustments and improved procurement. We also managed to improve our EBIT, although we saw slight decrease in our adjusted EBIT margin. Importantly, we continued the implementation of our high tech warehouses according to plan. And in response to the more cautious market environment, we also accelerated our cost control efforts within the building a stronger MECO initiative. At the same time, we're taking long-term actions to drive growth. Several strategic initiatives are launched during this first quarter. Let me go through a few of them starting at the next slide. To start with, we're accelerating our efforts within the tire segment, a key area for future growth. Tires are crucial component of the car today and will remain so in the future. Vehicles are getting heavier and electric cars wears out tire faster. This increases the demand for higher quality tires at higher prices. Our ambition is to increase tire sales with more than 30% within the next two years. And I'm pleased that we have established a strategic partnership with Gojer in Q1, one of the world's leading tire manufacturers. Let's move on to another long-term growth initiatives on slide four. Commercial vehicles are typically defined as the trucks, buses, picksups and similar. These vehicles are heavily dependent on reliable spare parts deliveries wherever they might be. With our extensive network, we are the ideal partner for those who repair, owns and operates these vehicles. In Q1, we established a new division under the leadership of Nils Holman, an experienced leader in the commercial vehicle sector. Our long-term ambition is clear. We want to achieve the same leading position in commercial vehicles as we already hold in passenger cars. Let's look at the similar growth initiatives on slide five. We not only have a vast network, we also have a leading expertise in electrical vehicles. This includes more than a thousand workshop certified for high voltage systems. This was a key reason why General Motors chose Mekko as the strategic partner for all aftermarket needs for their new electrical vehicles in Sweden. We're proud to collaborate with Cadillac, one of the world's most iconic brands and to add another manufacturer to our growing list of partners. Let's move on to slide six. And a significant step in strengthening Mekko's position for the future. Our high tech warehouse projects are progressing according to plan. The construction phases are complete and we are now moving in. We are already live in Finland and currently testing the technology in Denmark and Norway, aiming to be fully operational across all sides in the autumn. In short, this will elevate our logistics to an entirely new level and open up for new growth opportunities. I look forward to sharing more details at our capital markets day on September 10 in Rørup, which is outside Odense in Denmark. Now let's turn to something else worth highlighting, our expanded annual sustainability report and I will hand over to Christian.

Thanks, Per. So as market leader, we set standards for the industry in our system and not only for cutouts, also for other important areas. One such area is sustainability, where we do a lot. We are glad to share an update on this work through our annual and sustainability report, which we published on March 27th. And as I'm sure you know, reporting requirements have evolved and we are well on track to meet them. In fact, we believe that the industry as a whole will benefit from a greater transparency and we are ready to lead the way. To give two examples of tangible progress in 2024, we increased the percentage of female managers from 15 to 17% and we increased the proportion of renewable electricity from 11 to 80%. Turning to financials on page eight, we did as Per mentioned, see a resilient performance in a slow market. Net sales increased to 6% by 6% to 4.6 billion SEK with organic growth being slightly negative at minus 1%. The organic growth metric is after adjusting for effects on working days, both of which contributed negatively in the quarter. Nevertheless, with help from maintained gross margins and a controlled cost development, we were able to generate an adjusted EBIT of 231 million SEK. This is an increase versus the comparison period, both on the adjusted and the reported level. The difference between EBIT and adjusted EBIT referred to as items affecting comparability amounted to 70 million SEK, of which half related to ERP product cost. The remaining half include nine million SEK of cost associated with the warehouse projects. And this is mostly double rents. The overlap on lease contracts is between six and nine months. And for the full year, I expect items affecting comparability related to warehouse products to amount to say about 40 million SEK. When it comes to cashflow from operating activities, Q1 is typically a weak quarter, although the comparison figure from 2024 was a bit of an exception. The level in Q1 2025 is a result of increases in the non-inventory component of working capital, so payables, receivables. It's not so that the payment terms or similar things have actually changed to any significant degree. So one should really read this as a fluctuation rather than a structural change. I mentioned stable gross margins illustrated on page nine. There are no surprises on this front. We have already pointed out that growing in a lower margin market like Poland is diluted to gross margin. And in the graph, this is included in the other category. I also wish to make a few comments on FX. So in a sense, the tide has turned. Currency effects are now helping. In simple terms, our purchasing is mostly in euro, whereas sales are in a mix of currencies. So all else equal, margins will benefit from a weaker euro. At the same time, we also note that in many markets, and not least the competitive market in Poland, such effects tend to be passed on to customers through negative price adjustments. Finally, we should note that growth in Denmark, Finland, Poland, and the Baltics over the last few years mean that Meco's FX mix is less one-sided than it used to be. As usual, I will in a minute comment on key developments by market. But before going to that level of detail, we note that Sweden, Norway, and Denmark form well. These markets represent 60% of our business. We have strong markets in all of those countries, and we do continue to invest to protect them. Our financial position as illustrated on page 11 remains strong. Our leverage at 2.4 is well within our target range. Available funds amounted to 1.7 billion SEK at the end of Q1. We are tending to the maturity profile of debt with a first step in Q1 through the renewal and extension of our RCF. Next on our list is to look at the bond, which matures in 2026. Now, with regards to the recent uptick in net debt, there are three comments worth making. So firstly, I mentioned that operating cash flow in Q1 is often seasonally weak. That was the case also in 2025. Secondly, separate from operations, we are working our way through a phase with larger investments. CapEx in the quarter was almost twice the historic level. And this is mostly linked to the new warehouses. When those are completed later this year, we expect to stay there for at least 10, 15, maybe 20 years. So hence, clearly, the higher CapEx level is not a new normal. Looking beyond what is capitalized, we are also investing into the ERP program at the pace of 100 million SEK a year. And this program will continue throughout 2025 and 2026. Finally then, looking into Q2 and Q3 as well, we are undertaking three parallel warehouse moves. And in that, maintaining a good service level to customer is, of course, key. We are taking actions to mitigate risks, even if it in the short term goes against our longer term drive to rationalize inventory and working capital. So to sum up this page, we have a number of initiatives going, but we do operate from a position of strength. Moving into our business area by business area review, we start with Denmark on page 12. So in Denmark, it just a little bit increased by 16% to 77 million SEK, despite the slow top line. And this strong development came about through a combination of pricing efforts and cost control. Denmark is a very competitive market, and the efficiency will continue to be in focus throughout 2025 as we ramp up and fine tune operations in the brand new and modern central warehouse in Odense. And as you heard Pär saying, this is also where we, on September 10, open the door to show investors our capabilities up close. Turning to Finland on page 13, the development is less satisfactory. So despite improving gross margins and cost coming down also in absolute terms, we are in a sense outpaced by a market which has been slower than anticipated. Like many of our business areas, a warm winter kept sales down. And in Finland, we are also noticing less helpful macroeconomic development. As previously announced, we have taken actions to improve efficiency, and these are progressing. For example, the auto store automation is in early phase operation. Ultimately, this will enable staff reductions. And we are now in a six month phase to ramp up and complete changes in the related workflows. In Poland and the Vortex shown on page 14, we see top line growth of 43%, both through the full year effect of earlier acquisitions, but also in terms of organic growth. And the difference in growth dynamics was and is one of the strategic reasons why we have invested in a larger footprint here. Considering that Elite was loss making at the time of acquisition in August 24, the year over year EBIT comparison is perhaps less meaningful. On the integration of Elite, we did pass a few milestones, one of them being that we exited the transition service agreement on IT. And the integration continues. The estimated total cost of 70 to 100 million CX still stand, even though only limited amounts ended up being incurred in this particular quarter. In Sweden, Norway, on slide 15, profit generation continues at a healthy level with adjusted EBIT increasing to 143 million CX, corresponding to an adjusted EBIT margin of 8.3 in the quarter. So as noted before, this is the result of cost measures taking in 23 and 24. Market headwinds are still high. Market headwinds have not gone unnoticed, as seen in the negative 2% organic growth. This is also not changing our plans. Our current focus business area is simplification of the Swedish branch network in parallel to running capacity validations on the new Norwegian central warehouse. Finally then, CERNs and the Balkan on page 16, we note a slight reduction in sales and adjusted EBIT. Following many consecutive quarters of solid development. So with sales coming in a bit below our expectations, we also saw lower adjusted EBIT margins compared to the very attractive levels seen in recent periods. And I have to say that this operation is quite lean. So hence, our priority here is top line growth, be it through refining the assortment or smaller selective acquisitions. Looking beyond 2025, there should also be synergies to extract in logistics on the back of the investments that we are now doing in Norway. So with that, I'd like to hand back to you, Per. Thank you,

Chris.

To

summarize the first quarter, we delivered a solid EBIT and maintained our gross margin through price adjustments and better procurement. Total growth was 6% organically, the pace was slower. We took several long-term actions to drive growth. We launched a new division for commercial vehicles and then the new partnerships to accelerate our tire business. Importantly, we continued the implementation of our high-tech warehouses according to plan. These new facilities will not only increase efficiency and customer service, they will also take our logistics to a completely new level. I'm really looking forward to our capital market today on September 10th, when we'll talk more about this and showcase our brand new warehouse in Odense. That day, we will also provide more information about our other growth initiatives and the efforts we are making to build a strong Emeko. So you're all very welcome. That's all from me. Thank you for listening and we'll now 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 key six on your telephone keypad. We kindly ask you to mute your microphone after you have asked your question. The next question comes from Matt Slater. This is a question from Kepler Shuvru. Please go ahead.

Yeah, thank you. Couple of questions. First, I guess, relating to the, well, somewhat mild winter and so on. Do you see that, I mean, is there sort of a pent-up demand still regarding service or is it more sort of winter conditions haven't been too mild and the measures normally affecting during harsh winter is not going to be that and now we are more in for the normal, hopefully, second quarter with the pent-up demand ahead of the driving season and so on. I would

say it's a combination. Compared to the quarter last year, it's a lot of effect from very cold winter, but then at least some of the markets, there is, let's say, very cautious market and the demand is not fully up. And yes, it might be a pent-up, but when that occurs, I will pass on because that's still unknown. For example, Finland is very slow market and at one point that wind will cover, but I can promise you that it will happen.

The Finnish operation, as you mentioned, is a bit soft, I guess. But how much is sort of due to company-specific reasons? I mean, you make this integration of warehouse, upgrading the logistical structure and what's the bottom line there?

Yeah, we did do a lot during the last year and the junior quarter, but those, so we have actually reduced costs and we have improved efficiency and everything, but then there is a strong headwind due to very low demand. So that the P&L can get. The warehouse product is looking good. The automation is actually up and running, but that step one out of two, we also need to rebuild the manual warehouse. Full effect from that initiative, that will be in the second half of the year. So it's still more to come from the initiative. What we also have done quite lately is that we are strengthening the sales organization in order to also get more market there.

Thank you. And secondly, or just about the coming quarter now, I mean, the Easter was more of a first quarter event last year, the Easter holiday, I mean. And now it's more a second quarter. Should we expect some extra impact there, especially in Norway, I guess, or is it, could you say something there? I mean, it's probably something to get the feel for how things are developing in the second quarter.

Yeah, it would be maybe, it's a bit, we don't guide in that way, but you're right that Easter is in April this year. It has a little bit both positive and negative effects. It's positive for certain subaltium because they have a lot of extra sales before Easter because of the accessories and that kind of things. But most of the markets has negative effect. So one would expect that there will be an effect from that in the Q2. And then of course it's the working days.

Maybe I can add, good morning, Mats. So if you look for all the markets on a combined basis, there is one less working day in Q2 25 compared to Q2 24. And that was also the case actually for Q1. So Q1 was one working day short compared to the previous year.

Okay, yeah, thank you. And then, well, Christe mentioned the currency impact and stronger Krona towards the Euro has some positive there on your procurement in Euro. Have you seen the full impact of that in the first quarter or is there sort of a future through more in the second? Could you say something about that?

But you have the one time effects, of course, one, which is in the positive. Then I'm talking about the balance sheet, but then the gross margin effect, that will be delayed, let's say, four to six months before we have sold out what we buy for cheaper. Unfortunately, the Norwegian Krona didn't follow the Swedish Krona this time. So what we win in Sweden, we kind of lost in Norway. So it's not that big effect any longer as it was some years ago. Okay, yeah, I understand.

Great, okay, well, thank you. That's all for now. Okay, thank you, thank you, Rolf.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. The next question comes from Andreas Lundberg from Seb. Please go ahead.

Sorry, I was doing hard. I really kept telling it to you. Yeah, good morning, Andreas Lundberg with FCB. On the heavy truck initiative, I'm wondering why you're doing this, and what's your edge, and how will you utilize your strength in passing the cars on the heavy truck side? And see if you can talk about the strategic reasons and so forth.

Yeah, it should be argued, and the argument is very depending on the fact of the fix, because it's a specific number.

So

to say,

it's

the reason why we want to enter it. We think that with our network, we can utilize all that to show the hands of some customers who are ready, our customers, because there's been a bit in all aspects. We did talk about this a couple of years ago, in Sweden and Norway, where we ramped

up

the new area for the other countries.

I think I lost you a little bit, but to say that you are some synonyms when it comes to purchasing and distribution.

The logistics and distribution, also when it comes to the customer, some of our customers are doing both. So we can add the same customer.

Then

of course the works for heavy vehicles usually also have some passenger cars. So there

is a lot of

these in

the

customer area. With the supplier, there's a lot of new suppliers. That's why we need to get the volume, to get the right, and also suppliers where there already are big customers, because they have a sort of a role.

It places. Okay, I think I got you. Perhaps Christi, can you help me understand the financial net and how to see it in 2025? Thank you.

Yes, good morning. So on the financial net, we elaborated a little bit on Q1. You of course have

the

expense on the financing, but you also have a component related to the lease contract.

Now

in Q1, we entered into, we took a piece to the property system market Norway.

Means that we are

now starting to recognize these lease liabilities on the balance sheet. You can see it's on point to Bill and Jack. That also has interest component, which is contributing to a little bit of an increase on the financial net. I believe on the last call, I gave a range of 60 million on an annual basis related to these interest components of the lease liability.

Other than that,

there are no big kind of movements on the financial net. And as I mentioned on the call earlier here, we have long the debt. So that's all good. We're now looking at the bond

towards 2025. Right. And then when you're fully up and running in the new warehouses, will it be reduced leasing that from units you potentially will close or how will that be?

Correct. So we are currently, you could say we are operating the central warehouses to service the three markets with the reason being that the shift of course overnight. So there is an overlap, call it six to nine months during which we move the inventory and get all the operational stuff running. Currently we are incurring

rent

for warehouses,

the impact on Q1, Q9.

And that will continue then in Q2 and Q3, I guess by early Q4 we should be out of all the options then this temporary impact will be there.

I got you. I got you. Yes, nice. And Aslam, you mentioned a little bit about working cap to one seasonality, but given that you are doing these warehouses this year, how do you see working capital in 2025?

I think if you look at the end point of 2025, there could be no big unexpected.

What

I did,

as we go through, we are moving the inventory.

We are primarily to make sure that there are no risks

that we don't

end up not being able to serve in the future and we would be willing to absorb it.

So we have to reduce the risk that might end up with a lot more. I think that's it. Thank you. It's a little bit difficult to hear your line. You are aware of that. Thanks for me for now. Thank you. Thank you.

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

Thank you. Thank you all for listening. And again, put in the calendar, September 10th, when we have a capital markets update and you're welcome to Denmark, Odense. And with that, thank you for listening and have a great day.