Third Quarter Interim report January - September 2019

Strong sales growth – positive development with increased profitability

1 July–30 September 2019

• Net sales amounted to SEK 2,879 M (1,850). Net sales rose 56 per cent, of which 2 percentage points in organic growth.
• Adjusted EBIT amounted to SEK 231 M (148) and the adjusted EBIT margin was 8 per cent (8).
• EBIT totalled SEK 191 M (118) and the EBIT margin was 7 per cent (6). EBIT was not impacted by items affecting comparability in the quarter (neg: SEK 4 M).
• Positive impact of IFRS 16 of SEK 5 M on EBIT and adjusted EBIT.
• Earnings per share, before and after dilution, amounted to SEK 1.95 (2.30).
• Cash flow from operating activities amounted to SEK 425 M (44), which was positively affected by SEK 126 M as a result of IFRS 16. The total cash flow for the period was not affected by IFRS 16.
• Net debt was SEK 3,814 M (5,622) at the end of the period, compared with SEK 4,098 M at 31 December and SEK 4,042 M at 30 June.
• As of 2019, leases are reported in accordance with the new standard IFRS 16, the comparative figures have not been recalculated. See page 9 for further information.

1 January–30 September 2019

• Net sales amounted to SEK 8,888 M (4,915). Net sales rose 81 per cent, of which 2 percentage points in organic growth.
• Adjusted EBIT amounted to SEK 724 M (464) and the adjusted EBIT margin was 8 per cent (9).
• Earnings per share, before and after dilution, amounted to SEK 6.34 (6.99).
• Cash flow from operating activities amounted to SEK 940 M (285), which was positively affected by SEK 379 M as a result of IFRS 16. The total cash flow for the period was not affected by IFRS 16.
   

CEO comments

Strong sales growth – positive development with increased profitability

Net sales in the third quarter of 2019 rose by 56 per cent to SEK 2,879 M (1,850) compared with the year-earlier period, positively impacted by the acquisition of FTZ and Inter-Team.

In line with the first half of 2019, we had a stable performance in the third quarter. The organic growth was 2 per cent, mainly driven by increased sales to affiliated workshops. Adjusted EBIT increased to SEK 231 M, compared with SEK 148 M for the year-earlier period.

Purchasing synergies on goal, but strong EUR increasing purchasing costs
Synergies from the acquisition of FTZ and Inter-Team contributed to lower purchasing costs and had a positive effect on gross margin for the quarter. However, the synergies were partially offset by a continued increase in purchasing prices due to the strong EUR and intensified price competition in several of our main markets. As a result of the strong EUR, we will currency-adjust our prices in Norway, Poland and Sweden in the fourth quarter of 2019.

The FTZ and Inter-Team business areas have, as previously communicated, generally lower gross margins than the other business areas. This has a negative impact on the Group’s gross margin. The overall gross margin for the Group was 45.3 per cent (51.3) for the quarter.

Improvement in profitability
Organic growth in MECA/Mekonomen was 3 per cent in the third quarter and EBIT rose to SEK 128 M (116). An intensified pressure on gross margin was compensated by higher sales and cost savings.

In the third quarter, Sørensen og Balchen was negatively affected by continued weak consumer sales through stores and the organic growth was -6 per cent. Efficient cost control and positive impact from acquisitions in the beginning of 2019 supported EBIT for the quarter to remain in line with the year-earlier period at SEK 30 M (29).

Inter-Team noted favourable sales growth in the third quarter1), mainly driven by strong growth in the Polish market and a high level of export sales. FTZ developed in line with the year-earlier period1) despite a slightly weaker performance in the market, which was comparable with developments in large parts of the European market.

Focus forward
Our focus remains on generating profitable growth in all of our operations and to deliver on communicated strategic projects and initiatives.

The ongoing cost-savings programme, which was announced in February 2019, remains on track and had positive impact in the third quarter. Full effect of SEK 65 M on an annual basis is expected to be reached from the fourth quarter of 2019.

The merger of MECA’s and Mekonomen’s central warehouses in Sweden is proceeding as planned. During the quarter, we successfully completed pilot deliveries from the central warehouse to MECA and we will scale up at a cautious pace, to ensure continued high service to MECA's customers. In Poland, we have improved accessibility and competitiveness in the southern areas of the country by opening a new regional warehouse in the Krakow area. The merger of the central warehouse in Strängnäs and the opening of the regional warehouse in Poland will result in a temporary stock accumulation in the coming quarters. In parallel, our focus in all parts of the Group is on keeping working capital at a stable level.

The B2B sales accounts for approximately 90 percent of the total sales. Digitalisation in the Group is high and the main part of B2B sales of spare parts and accessories to workshops and other company customers are made through digital flows. When it comes to B2C, sales through e-commerce has increased significantly in recent years.

I am convinced that we have great potential to gain market shares and further improving car owners' customer journey through sharpening our digital sales streams. Our direct digital B2C sales take place through e-commerce in the business areas MECA/Mekonomen and Sørensen og Balchen. In addition, it is important to continue to digitise the booking flow for workshop services in all our business areas. We see a great demand from car owners to book workshop services digitally, with the number of digital bookings increasing significantly quarter to quarter.
 

Finally, I would like to say that I am proud of the Mekonomen brand, which for the fifth time over the past six years has been named as the strongest Swedish brand in the “Car accessories and workshops”2) industry. Even if we are primarily a distribution company targeting workshops and other corporate customers, it is important that we develop our business with a high level of consumer insight, where car owners are aware of and have positive associations to our brands and experience a high degree of customer service throughout the whole customer journey.

Pehr Oscarson
President and CEO

1) FTZ and Inter-Team were acquired on 3 September 2018 and no exact comparative figures have been calculated for the entire third quarter of 2018 as the companies before the acquisition had a different financial year than Mekonomen Group.
2) According to an annual consumer survey conducted by Evimetrix concerning brand awareness and customer satisfaction.