Meko AB (publ)

Thank you, Krister.

A few final words from me. During the second quarter, we continued to see clear results from our efforts to improve profitability. Our costs continued to decline and our gross margin increased. We achieved profitability in both Poland and Finland, meaning that all our business areas were profitable during the quarter. Our adjusted EBIT increased by 32% and we reached an adjusted EBIT margin of 5%. We also continue to reduce our leverage, which remains a priority for us. At the same time, overall sales were unchanged, a performance that we want to improve. We therefore continue to work with a number of focused initiatives to drive long-term growth. We do this with a strong foundation on our modern logistic platform, our well-known brands close to the car owners and continued digital innovation. Our ambition is clear. Mieko should strengthen its leading position as the automotive aftermarket continues to evolve. So with that said, thank you 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 Matt's list from Kepler Shoebrew. Please go ahead.

Hi, thank you. A couple of questions. First, you talked about the measures to improve sales in Sweden was a bit subdued compared to Vilja, for instance, which generated organic growth. Could you say something there about the first the measures you will sort of implement or have implemented now and also maybe something about the performance during the court in April, May, June, please?

Yeah, I'm happy to do so. When it comes to Sweden, we also have some challenges with new actors coming into the market, so the competition has been quite strong, stronger than ever, I would say. But what we have communicated, of course, our initiatives of tires, e-commerce and and exclusive brands. Exclusive brands, for example, that the product is now coming into stock. So that will start to sell here after the summer. I think the biggest effort from the Swedish organization, that is back to the core business. Last year was a year of a lot of integrations, mergers of stores and those kind of things. And now it's full focus on deliver good service to the workshops. And also, I would say in Sweden, we have good traction on the fleet sales also, which will support also growth in Sweden. So there's a lot of initiatives and a full focus on the Swedish market.

Should I interpret this answer as you sort of keep your market position by and large and it's not I mean Bilea maybe benefit somewhat from their new car. It's difficult for you of course to comment on Bilea's performance.

We have a difference between us and Bilea just to make that clear. I would say if you look at the market they are Their customers are usually owners of cars, let's say, 0 to 5, 6, 7 years old, while we have 5 to 15 years old. So that is a difference. And, of course, that shifts also in how the market development and so on. So that's why it's not completely comparable. And the new competition, which I talked about, that is in our area. It's not on the new. So, it's a little bit...

I lost your question, but... No, I guess we have some increase there in new car deliveries, which have implemented some sort of service also. And could you just say during the development, during the quarter, I mean, April to June, is there any sort of change in momentum or is it sort of?

I would say it's nothing extraordinary in the quarter other than hard work for deliver long-term growth.

Okay and then well Denmark is sort of your trying hard there as well, but maybe a bit weaker than I expected. Is it sort of more to come there regarding the implementation of the new logistical structure that will help you going forward or continue to help you going forward?

Yeah, I think that we will expect some more efficiency out of the warehouse. We also reduced, compared to last year, we closed down several of the smaller branches. So if you would like to just measure sales per branch, that is actually increasing in Denmark thanks to that. But it was very small branches, so maybe not important. But there is still efficiency to gain in the, let's say, warehouse and logistics projects.

Yeah, great. And then Poland-Beltics, I mean, it's a pretty solid performance there compared to, well, Sikorsky and Girovieri. And the trend seems to be... developing in the right direction still given the reduction in manpower and so on. There are more to come I guess.

Yes, as Christian mentioned, the plan was to reduce with 200 FTEs and we have this 160 that has left so there is still more to come and a long term Our ambition is that we should leave the year with profitability in Poland. So there's still more work to be done. And long term we want to be as good as our competitors. So there's still room for improvement on the longer term.

And finally, I mean, maybe cash flow

actually weaker there is any any sort of change in trend going forward there yeah now maybe let me let me comment on the cash flow so if you look at cash flow from operations before changes in working capital it's actually still strong We did have some changes in working capital during the quarter. They actually do not relate to inventory. So inventory continued to reduce also in the quarter and for the first six months in total quite nicely. But the changes relate to other components of working capital. This is where, as you may recall from the Q1 call, we described that we had accelerated some processes specifically relating to bonuses compared to last year. Now that doesn't change anything kind of for the first six months as a whole, but it did change things in between the quarters. So I wouldn't read too much into kind of those effects. Maybe if you look at the first six months on a combined basis, that's an easier number to relate to. As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad.

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The next question comes from Anton Lund from SB1 Markets. Please go ahead.

Hey, guys. Good morning. Gross margin coming in at the best level in quite some time. Is there more work to do in terms of supply renegotiations here?

There is still room for improvement. Yes. But on the other hand, also, there's a competitive market. So if that will reflect on more, let's say, competitive power or actually more increased gross margin, that is to be seen. But there is always room for improvement.

Thank you and is it mainly Poland driving the development here or how should we think about that?

I would say the improvement is actually broad based so we've seen improvement in most of our markets but maybe Poland is the one where the starting point was the lowest so that's where it also helps the most in a sense.

Clear. And then I just got one question on cash flow as well. It's up year over year on a rolling 12-month basis. You're deleveraging quite fast now. Do you believe that you will reach your target range between two and three times by year end this year? And then how do you prioritize between the different allocation options once you get there?

Maybe I can start and you can add on, Per. So I think if you look at the various components of cash flow, so I mean, we went through a phase where the investment was quite high. That has now come down and you shouldn't expect it to kind of come back up anytime soon. If you're looking at cash flow from operations prior to working capital, I think I mean, the improvement stems from the improved profitability, which surely we're aiming to maintain. Working capital, as I said, okay, so there's some changes in between Q1 and Q2, but if you look at them combined, you know, it's pretty... undramatic outcome, I would say, also on working capital. So as long as we can keep the business going on this pace, then the leveraging should continue. And we went from 4.0 to 3.4 in the first six months. So at that pace, we would be in our target range by year end. When it comes to priorities going forward, I think clearly getting to the target range on leverage is priority number one. We're not yet there. When we're in that range, it's not so that we will aim for zero leverage. So at that point, there are other options on the table.

Yeah, and it will be a discussion for that time. Let's see what kind of environment we are in that moment. But last time we had those discussions when we were also within the target, we had kind of all options open. It could be back to dividend paying, extra dividend. It can be buyback shares.

It could be investments in the business.

But it's too early to look into that now. As Krister said, now the focus is to get there first.

Very clear. Thank you. And then just one final one from me. I think you previously talked about your ambitions to grow within CEVs, commercial vehicles. Can you just give us an update on how you're developing there, please?

Yeah, but that business is growing. It's not skyrocket, but it is developing in a positive way. And it's a lot about making sure that you have the right availability in the right regions and so on. So I would say it's a good process. It's not numbers that we disclose, but it's working in the right direction.

Got it. That's all from me. Thank you. Thank you.

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

Yeah, hi. Thank you. Well, just given the commercial vehicle update you gave, could you say something about, I mean, it's more of a Poland-Baltics relationship. strategy to move commercial vehicle service. That's my impression anyway. So did it make a meaningful contribution to Poland Biotech's commercial vehicle service this quarter?

No, and I would say that it's not. We're very early stages in those countries where we have where we have the most mature sales of parts to commercial vehicles. That's actually Norway and Sweden and where we are. But it's more of a, it's very, let's say, flat over the old country. So that's not the reason for the improvement in Poland, no.

Okay. Thank you.

As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. Please mute your phone after you have asked your question. The next question comes from Nicholas Skogman from Nordia. Please go ahead.

Good morning everyone. I'd just like to follow up on the comment about lower interest expenses going forward due to the new loans. Can you give an indication as to the amount and also the breakdown of the interest expense into lease related expenses and actually loan expenses?

Good morning, Nick. That's a very detailed question. I'm not sure if I have all of those numbers in front of me, but maybe I can describe the situation on a little bit higher level. So if you look over the last couple of years, our financing, I mean, the bank financing and bonds and whatnot, has remained mostly flat whereas there's been a pretty significant increase in the lease liabilities and this relates to the new warehouses of course But if you look at the longer trend and the increase in financing costs, this is fully driven by the lease component of it. And one of our earlier calls, I think it might have been maybe three or four quarters ago, we had a split on those components where you could see the breakdown. I don't have it in front of me here now. So in essence, then you could say that the normal financing cost has remained flat. There is a component to it that is dependent on the leverage. So the lower the leverage, the lower the financing cost, even at the same volume of financing. And now when we're kind of on a downward slope, this will start to help us gradually. I don't want to give you sort of a specific guidance for the full year. There's too many moving parts here, but gradually we should be seeing an improvement to the financing cost in absolute terms.

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Could I ask another question? Maybe I missed it earlier, but could you give an update on your various efficiency programs? I think it was 100 million efficiency, I guess, plus the Polish program that you have in Q1, but also the warehouse cost savings. I thought that was going to be around 100 million as well on a full year basis. How much should we expect from cost savings in H2?

Let me give you an update. A year ago, we launched a cost saving program of 100 million. That has been completed and we're now running at full benefit from that program. That's good. Separate from that, we've also come to the conclusion that we need to reduce the staff level in Poland by 200 FTEs. We said that that's going to be up to end of Q3. And by end of Q2, we had reduced by 160 of those 200. So well underway also on that front. When it comes to the automation of warehouses, and this was covered in some detail on the capital markets day last fall, we set out to reduce the number of FTEs by 200. So those are 200 warehouse workers made redundant as a result of the automation. And as of end of Q2, we are 80% done so still a little bit left to do on that front but I think what can really move the needle for the coming quarters if we can achieve organic growth because I mean the cost base is now fairly slim and I think the bigger lever here is to grow especially now when we have capacity in these warehouses. Anything you want to add?

Yeah okay and are you sort of confident in organic growth in H2 or is it more hoping?

We're not guiding in that way. We have very strong ambitions so let's leave it to that.

And it's not hope I mean we're taking actions to get there. Yeah definitely.

Good thank you very much. 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.

Well, thank you all for listening and I wish you a good day. Bye.