Meko AB (publ)

Welcome to the MECO Q3 Report 2025 presentation. During the questions and answers session, participants are able to ask questions by dialing pound key five on their telephone keypad. We kindly ask you to mute your phone after having asked your question. I now hand the conference over to the speakers, President and CEO Per Oscarson and CFO Krister Johansson. Please go ahead.

Thank you. Good morning and welcome to MEKO's presentation of our results for the third quarter 2025. I'm here with our CFO Kristi Johansson and together we will walk you through our performance and current position. As you know the first half of this year was marked by slower growth and lower earnings Car owners were cautious following a prolonged economic downturn and unpredictable global environment. This also led to intense competition in Q2. This tougher competition continued into the third quarter. We achieved organic growth of 1% during the period compared with 2% in the same quarter last year. This also means that we moved from negative growth the first half year of 2025 to showing a positive sales trend in Q3. The competitive situation also put pressure on prices, which in turn affected our profitability. Our adjusted EBIT margin improved compared to the second quarter, but decreased compared with the same quarter 2024. And we are responding to this development. Among other things, we continue in the rollout of our new central warehouses, where staffing levels will gradually be reduced. We also continue the cost saving measures announced this summer. So let's take a look at that on the next slide. As you know, we have been working with the initiative Building a Stronger Mirko for some time. This initiative aims to improve our long term probability. By the end of Q2, we had achieved EBIT improvements of 200 million SEK within these initiatives. During the summer, we launched additional cost savings, adding another 100 million SEK through staff reductions. A significant part of these reductions has now been implemented, and during the quarter, another 2% of the workforce has been given notice of termination. However, as always, it will take some time before the effect becomes visible in the P&L. All in all, this means that at the end of Q4, we will have reduced the number of full-time employees by more than 500 compared to Q3 last year. We are also progressing in realizing synergies from our acquisition of Elite in Poland. Four team branches have now been closed as part of the optimization plan. Another key part is improving efficiency through our new central warehouses in connection with the commission of these facilities. We have vacated four out of the six facilities. Let's take a closer look where we stand with these projects moving on to the next slide. The new high tech warehouses are now operational and together they represent a significant upgrade to our logistics capacity. In Norway, Denmark and Finland, we are now handling goods with a high degree of automation. These hubs complemented the already automated warehouse in Sweden and together create a logistics network of very high international standard. The upgrades will naturally lead to several efficiency gains, including the reduction in the number of full-time employees. And as mentioned, we still bear some temporary costs, such as double rents and staffing, but we will gradually start to see the positive effects. And as it's usually the case with major warehouse automation projects, calibration and fine-tuning take time before the full potential is needed. This improved logistics capacity was also a key topic at our Capital Markets Day in September, where we presented several other important initiatives as well. So let's move to slide five. One of the initiatives is an acceleration within exclusive brands. Among other things, we are launching the brand Every Part Matters in seven new markets, meeting the demand from more price sensitive customers. We're also expanding our e-commerce business. The webshop Mexter is launching in Finland and then later in Denmark, making this business present across the Nordics. In addition, we will grow our commercial vehicles business to establish long-term leading position in this segment. These are only examples on how we're focused on increasing growth and improved profitability. I will hand over to Kristin in just a minute, but first I would like to highlight some interesting findings from our newly released mobility barometer on slide six. Even in these turbulent times, the car remains number one for all. As a matter of fact, more people are using the car every day compared to last year. These are a couple of many trends and findings in the new edition of our barometer, the largest study on mobility in the Nordics. And this is the fourth year in a row we're making this report, and I recommend reading it. That said, I hand over to Krister, who will elaborate on the third quarter, starting with our leverage, which has been in focus lately.

Thanks, Per. So leverage is always an area of interest, but in this quarter more so than usual. And the reason is lower profitability, which has coincided with a period of heavy investment. This has put significant pressure on leverage, which increased from 2.7 in Q2 to 3.6 in Q3. Now of this increase, no part related to an increase in net debt. And the increase is instead driven by two other factors of roughly equal size. To start, we see a lower underlying EBITDA gradually working its way into the rolling 12-month average used in the leverage calculation. Secondly, since we report leverage based on unadjusted EBITDA, items affecting comparability also matter. And as mentioned in the Q2 call, Q3 2024 included positive items affecting comparability And that quarter is now replaced, if you will, by a new one with negative items affecting comparability. So this effect alone corresponded to a 0.6 increase in leverage. Now, 3.6 is high, both in relation to our targets and in relation to our financing agreements. And against that background, we have during Q3 agreed with our banks on certain amendments to the terms. And we have also, with the final steps being taken here in October, secured a one-time waiver from the bondholders through a so-called written procedure. And this change, which received strong support by the bondholders is important because it enables us to execute the second tranche of the dividend decided upon by the AGM back in May, 2025. So that payment, of circa 110 million SEK will be done here in a few days. Looking at leverage in the longer perspective on page eight, one can see this has varied a bit throughout the years. We've seen periods of elevated leverage followed by phases of recovery. And it's important here to reiterate that we remain committed to our leverage target. And getting back to the two to three range is a priority. We're taking actions for that to happen. One area of focus is working capital. And although this helped in Q3, one should not expect much support in the near term, as the fourth quarter is often seasonally weak. Another area is investment, seen on the next page, page nine. So in Q3, we see the investment rate coming down as we said it would. And this applies to CapEx as illustrated in the graph. But the slowdown also applies to other investments such as M&A, which we've not done any, and to the ERP project where we are now entering a less intense phase. So with those initial comments related to leverage, let's move on to profitability on page 10. Here, we saw a slight uptick from Q2, but we're still operating at levels far below last year. So on a positive note, organic growth improved from minus 5% in Q2 to plus 1% in Q3, and cash flow from operations remained healthy. On the more challenging side, Competition, as Per mentioned, remained ever-present, which affected gross margins, as I will come back to on a later page. Project-related activity was still intense in Q3, and this can be seen in the elevated level of items affecting comparability, which include temporary staff involved in moving goods to the new warehouses. Some of this carries over into Q4. where we have now consolidated Søren Sønderbergens warehouse operations into the new facility outside Oslo. And it's perhaps worth here reiterating how infrequent these kind of costs are. So our old facilities in Denmark and Norway had all been in operation for on average 20 years. And we look at these new investments with similar horizons, so not a very frequent event for sure. Moving to gross margin on page 11, we've already commented on competition, which was particularly noticeable in Denmark and Poland. It's also so that growing in a lower margin market like Poland dilutes the consolidated level. And this country makes effect amount to circa 1% percentage point. And this effect should be less noticeable going into Q4 because now the comparables fully reflect the acquisition of Elite. Moving on and comparing adjusted EBIT with the year earlier, two areas stand out. So firstly, Sweden and Norway. Here, it's a combination of disappointing top line and higher fixed cost relating to the automated warehouse in Norway. Secondly, Poland and here it's price pressure, which has been strong and the integration of Elite, which is not yet complete. If we instead compare to Q2 on the next page, the picture looks a little bit different. So what is noticeable here is instead an improvement in Finland. It is, one should admit, from a low level, but still worth commenting. So let's start the business area by business area review with Finland on page 14. We are, as you can see, back in positive EBIT. Organic growth of 6% helps, even though that has come with a different mix. Operationally, there are some good signs. And to exemplify, order lines per worked hour in the central warehouse is up 50% within 2025. And in fact, the actions that we've taken in Finland, which include automation and cost cutting, it is basically the same medicine as elsewhere. But the difference is that we've come further in Finland because we started earlier. So let's move to Denmark on page 15. Here we saw organic growth of 1%. Although measured in Swedish SEAC, revenue was still down 2%. I already mentioned competition, which has led to lower gross margin in Q3. Looking ahead into Q4, the focus is to get into smooth operation in the central warehouse following the move. and we are not quite there yet. Moving to Poland and the Baltics on page 16. On the positive side, we see organic growth of 9%, but this has, however, come at lower margins. Operationally speaking, it's worth making a distinction between Poland and the Baltics in 2025. So in the Baltics, we have been operating in a steady state, generating decent profitability. In Poland, on the other hand, it's been everything but steady state. We've implemented several structural changes, which are indeed good for the long term, but there's no denying that they have affected operations in 2025. In Sweden, Norway, on page 17, top-line development remained muted. EBIT margins still exceed 10%. But clearly, we are zoomed in on actions to improve traction in the market. In Norway, the new central warehouse is operational, and in Q3, there have been A lot of focus on getting ready for Sørensen & Balskén to move in, which happened here in the beginning of Q4. This leads over to the last business area on page 18. Sørensen & Balskén, another strong quarter delivering adjusted EBIT of 44 million SEK. Q3 is also the last quarter where Sørensen & Balskén operate with its own independent warehouse. And the Q4 will be a transition quarter towards a model where we instead split the cost of the new central warehouse across the two business areas in Norway. There are no new costs for the group, but for the business areas, they will carry a larger part of the cost, affecting comparability with earlier quarters. So with that, I would like to point out that we are also now vacating quite a few of the buildings that we have used. The period of double rent is coming to an end. And in total, if you count the external locations, we are now out of five out of eight, counting also external locations. So still a little bit to go, but almost there. So with that, I'd like to hand back over to Pat.

Thank you, Krister. Well, to summarize, Q3 meant a continuation of the intense competition we saw in Q2, which at the same time was a consequence of a slower market. We achieved organic growth of 1% during the period. This means we moved from negative growth in the first half of 2025 to showing a slightly positive sales trend in Q3. Our adjusted EBIT margin improved compared with the second quarter, but decreased compared to the same quarter, 24. And we're taking a number of action to address this development. We're rolling out action for long-term growth and continue our cost-saving measures across the group to ensure we're better positioned as we enter 2026, as we don't expect the current market situation to change in the foreseeable future. So that was all from me. Thank you all for listening, and we will 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 phone after having asked your question. The next question comes from Andreas Lundberg from Seb. Please go ahead.

Yeah, thank you. Good morning, everyone. Starting off with cash flow, working capital swings in the third quarter, clearly positive. Can you maybe explain a little bit on the development in the third quarter, especially on payables? Thank you.

Good morning, Andreas. Yes, now as we say, cash flow was fairly strong in Q3. And in fact, if you were to go back a few years and compare it to the trend over the year, you would see that Q3 is often strong. On the contrary, then Q4 is often on the weaker side. So I would say that taking the seasonal trend into consideration, the cash Q3 is not much of an outlier. Perhaps a little bit better than we anticipated, but not overly so.

So it's more of a normal trend you would say, nothing specific you have done on the working capital side?

We always manage the working capital with the best of our ability but nothing exceptional and one should not kind of extrapolate this into Q4 because as I said Q4 is normally on the weaker side.

But if you look out, you know, beyond Q4, how do you view these working capital needs?

It's good to have the central warehouse product coming to an end, because that means we can start to optimize our community forest. If anything, there should be a spike positive coming out of that, but we are not expecting any massive movements there.

Okay, cool. And you talked about lower investment levels. Can you give me like a guidance for 2026 APEX?

So I think if you were to look at the Q3 number times four of the pair, it would be in that graph that we're back toward more of what it means. This is where we should be. There are no big new investments on the horizon now for quite some time.

Cool. And then another question, we talk about competition, pricing and so forth. What can you do about it? And given that you're running some concept workshop chains, can you capitalize on that in some way? Or how is it working? What can you do about it?

Yeah, but we can, of course, do a lot. And I think that... I mean, a lot of the price competition comes from the situation with that everybody's fighting for volume. And, of course, that's important for us also to get some help in the gross margin. But the launch of new countries, that's a way of competing with e-commerce. We launched a private price fighter brand, Meta. But I will also say that maybe a little bit more long term, but our to help the affiliated workshops with fleet sales and so on. That's also where we see you. And actually, where we're not that sensitive in the competition.

Okay, I think I lost you once in a while there, so I can't come back afterwards. I think you mentioned higher input cost in Sweden and Norway. What is that about?

I would say the primary change in the cost in Sweden and Norway, if you look over a year, is the additional... We are now leaving the warehouse where the parking has been operated. There's a little bit of public cost coming out. Other than that, the development of cost in Sweden has been on the positive side. So we've been able to take out quite a bit of cost in support functions mostly. But there's been no other big... Maybe, I don't know, were you looking at them specifically?

We can call them.

Okay. The line is not very clear to me. But lastly, Dan, can you update me on one time or on the current items? What remains? Thank you.

So the two bigger items that we've had over the last few quarters, It's part of the investment into the ERP project. This is now being run in a slower pace. That part will come down. You can see it specified in one of the notes. The other part are costs related to the warehouse move. And as we said on the call now, we're very close to being done with this. Some activities will head over into Q4. maybe there will be a little bit of activity still in Q1, but we're close to the end of those. So with that, items effective comparability should be coming down. And it's also fair to point out that in the 100 million cost savings program, we've not made any big accrual. And the stock production has mostly gone through, I would say, normal negotiation with the union. So should not come with big costs.

Okay, thank you so much. That concludes my questions.

Thank you.

The next question comes from Mats Lis from Kepler Shoebrew. Please go ahead.

Yeah, hi. Thank you. Well, a couple of questions here as well. Coming back to Finland, I mean, you managed to turn around to positive numbers here in the third quarter. Is it sort of a sustainable changeover or are there any sort of one-offs included there which explain the improvement?

No, I wouldn't say so. We have a good growth in Finland. A little bit helped by... more stability in the market, but also that we are gaining market shares and we are well, I mean, we started already one year, one and a half year ago with cost saving programs and which really starts to kind of hit the P&L. They are also a little bit earlier in the phase with the automation. So they start to have a very good effect with that automation partners. So we have clearly ambition to continue to grow in Finland.

On the other hand, I mean, Poland-Baltics is soft, but you have the Elite Polska impact and you have, then again, Topline was pretty good. Is it, when could we expect you to break even there?

on tuesday four o'clock no uh jokes uh there there is there is a still job to be done in the in the integration uh we said that it will take 18 months and we are well in progress uh i think crystal mentioned that 14 of the approximately 20 francis that we aim to close this is done but it's still still work in progress and then we have a strong competition, of course. So I wouldn't say in time, but we stick with the ambitions we had when we did the acquisitions that we should be in much better shape during next year.

And maybe what I can add there. So in 2025, we've also been moving the warehouse in the Warsaw region, a big one. which has been quite an extensive project and surely operations has not been running completely smooth during that process, but there's also some effects in 2025 from things we've done to improve the run rate going forward.

Good. And then maybe, could you see, I mean, Andreas asked about these items, effects being comparability and so on. Could you say something about the amount included in the third quarter? Overall, I mean, no.

So Q3 is not very different from the earlier quarters on this front. So the bigger items are the ERP project, which is now entering a slower phase. And then the other bigger part are the costs associated with the warehouse projects. And that part should also be coming down because now in fact we are approaching the final stage of these products. Then as you know, items affecting comparability, they could be things which you did not plan for. So I will not make any kind of projection for that item, but there's nothing big that we anticipate now.

And when I read quickly through the geographical business segment, I found 5 million in the Baltics, I think, and 5 million on the other. Is it sort of on that level, 10, 15 million of extra costs?

There's a note also in the court report. I think it's note two, perhaps, where you can see a more detailed look. but roughly what we covered here.

Okay great and well then again the financial net was a bit softer than I expected and these leasing obligations are they also affected by when you sort of move out of warehouses I mean you get less lease obligations?

No so on the financial items there's a few things worth pointing out so in other financial items, there's some FX and some other kind of one-off items. So I wouldn't kind of factor those into your projections for the future. On the interest expense side, it could be good to remember that we've completed a tender offer for the old bond, but that was not 100%. completion at that time. So in Q3, we've been carrying an excess debt of 500 million SEAC, almost for the full quarter, even though at the end of the quarter here, we repurchased the final part. So that the interest expense on that excess debt amounts to circa 5 million SEAC. That is not of no essence for the future quarters. And then finally on the lease part that you mentioned, so We have now taken all of the facilities into use. The run rate in Q3 includes everything that we are anticipating. It's also so, as you said, that we are now leaving some of the old premises, but the effect of this is not very material. So one should expect the least cost to kind of stay on this level for the future quarter. So also maybe just as a final comment then, of course, the bond issue that we did was issued at a lower rate compared to the bond that we repurchased. So over time, there's also a slight benefit on the external financing coming in here.

Great. And just to follow up on that one, I mean, you had to ask the bond officer to get approval for the final dividend tranche debt. Have that affected your interest rates, your pay going forward?

This was completed after the end of Q3. Q3 is not burdened by those costs. They will be incurred over the lifetime of the financing. So it will not be a one-off item. On the bond specifically, as you may recall, the waiver fee was 0.75% on a bond of 1.25 billion. So that's roughly 9 million SEAC in costs for the one-off waiver. And then that will be incurred over the lifetime of the bond.

Okay. Good. Well, that's about it. Thank you.

Thank you.

The next question comes from Anders Akerblom from Nordia. Please go ahead.

Hi. Good morning, Per and Krista. This is Anders from Nordia. Just starting off a bit more high level, it would be interesting to hear some more color on the competitive dynamics that you discuss. I mean, from which actors in the market is this mainly coming from? Is it independent players, other e-commerce competitors, chains? Anything here would be quite interesting.

I would say it's coming from everywhere is the easy answer, but that's also since it is a kind of a hunt for volumes due to the low demand in the first half year, especially, which means that everybody's fighting to get on the right level for their supplier bonuses. So that affects everybody. Then if I should point out something, then e-commerce is more active, not extremely much, but maybe more active. We also have some of our European college that works with a lot of export also to get volumes. But in general, it comes from all the players. Maybe if there's some part which is less... or stable competition that is the competition from the OEMs and from the authorized dealers that's quite stable but all actors in the independent of the market is fighting for volume simply.

Makes sense. Just following up on that I mean does that in any way kind of impact your consideration and perhaps how you think of the Maxtor e-commerce platform going forward in any sense?

Yeah, it makes it more important to do what we have said we should do and we are expanding now into new geographical markets. It's quite, I mean this Capitlite expansion since we have the platform everything ready for it but it still takes some time because it's new languages it's a local distribution and it could be different payment solutions but we're on a full throttle on that area to to get into that business more and more actively yeah okay

And with regards to that, I mean expanding into Finland and Denmark, as you mentioned, could you speak anything to the adoption rates here in the initial markets and kind of what your expectations are here going forward?

No, we do not disclose that. That's due to we don't want to give our competitors too much information at this stage.

Makes sense. Finally, you mentioned that you expect the current market situation to remain at these levels in the foreseeable future, if I heard you correctly. Is that maybe more relevant to think of these levels or the first half levels? How should one think of that comment? going forward?

Yeah, think of it like we reported Q3, that we are at the moment. But what is very important is that it's very difficult to predict the future because what i see at least is that the uncertainty around uh the consumer confidence and so on is uh as high as it was in in q2 maybe in some of the markets a little bit lower interest starts to get a little bit better but it's uh it's uh first of all too early to say and then so the let's see the uh outside factors uh we are still kind of uh yeah very very difficult to predict so the what we can do is of course to focus on our initiatives around growth and especially maybe the cost savings program and so on yeah makes sense just the final question on that if I may I mean apart from kind of the obvious things

What do you think would need to change for customers to return to more normalized repair and maintenance patterns? Is there anything you can do specifically to nudge customers in that direction, if you get my question?

Yeah, it's a good question, but not that easy to answer. But I think, or I guess, that when the general economy of the consumers allows you to invest a little bit more on the car and other things, I think in this part of the financial situation, when people start to get better, maybe it's not the car who gets the first money from that. But that's very difficult to predict. But of course, a better financial situation for the consumers will also lead to higher demand, because we see now that the people are delaying the service, only do what's actually necessary. That's not the norm. The norm is that we want to maintain the car to have a healthy life going forward. What we can do, again, is to address and be better in the different customer segments. We have the affiliate workshops who are very good in, let's say, the customer who wants to have an easy car life, easy to book online and availability and so on. but now also launching the private label which is for a little bit more price sensitive customers so they can also kind of repair the car even if it's a very old car and has a very low value we have to have an offer for them also.

Yeah okay that makes sense I appreciate the answers Per and Krister thank you.

Thank you.

The next question comes from Lina Berg from Danske Bank. Please go ahead.

Yes, thank you. Good morning. Hi, I'm Krister. Some questions from me. So if I start here with the EBIT design that you have experienced in 2025, could you specify how much... that is attributable to lower pricing, so the higher price competition that you're seeing, and what could be attributable to other factors such as lower sales, higher fixed or variable costs, if possible?

Maybe I start and then you can add on, Per. So currently we're running with an organic growth of plus 1%, so call it close to zero. So we haven't seen much volume growth in this year and neither have we seen a big drop in volume. So in that sense, you could say it's kind of steady. What has been different this year compared to last year is that the price competition has been tougher. So we've had a negative impact on the gross margin. You could see it on one of the slides. Of course, in a business like ours where Gross margins are pretty high and fixed costs are also fairly high. That has a big impact on eAbit. So the pricing component is considerable here. Then, of course, if you look at eAbit, instead of looking at adjusted eAbit, you will also have the effects of the changes that we've been implementing. But if you instead look at it just a bit where we take out those costs, then you see sort of the underlying business. And that's where the gross margin has been the major component. But Per, please.

No, but I think that's covered.

Okay, so thanks. And if we would assume that the macro stays the same in 2026, but EBITDA will improve because of your cost savings and efficiency measures. Do you have any view on when you expect your reported net debt to EBITDA to come back to your target level? Did you lost me?

hi sorry hang on we're expecting some problem at the moment so please hang on for a few seconds okay Anders, you're in the presentation mode, so you can continue from your phone, please.

Hello, some technical difficulties there.

Now we're back.

Okay, super. Then I will repeat my question. So if we would assume the same net growth in 2026 as 2025, but your EVTA would improve then because of the cost savings you're doing and also efficiency from the new warehouses, could you say anything on when you would expect your reported net debt to EBITDA to come back to your target level?

It's a valid question, but typically we try to avoid to give too much of projections since there are so many factors which we don't influence fully ourselves, like the market, for example. So I don't think we want to give a projection for that. What I can say is, however, that the actions that we're taking are very specific and production, they don't have a implementation phase. It's called launch. So the effects from the actions we're taking should be normal.

Okay, that's it. Thank you very much. That was my question.

Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.