Interim report January - September 2018

08 November 2018 07:30

Successful acquisition of FTZ and Inter-Team resulting in record sales

1 July–30 September 2018

• Revenue rose to SEK 1,887 M (1,414). Adjusted for the acquisition of FTZ and Inter-Team, currency effects and calculated on the comparable number of days, revenue rose 2 per cent. Sales in comparable units rose 1 per cent, in local currency.
• EBITA amounted to SEK 155 M (157) and the EBITA margin was 8 per cent (11).
• EBIT amounted to SEK 118 M (127) and the EBIT margin amounted to 6 per cent (9). EBIT was negatively impacted by items affecting comparability of SEK 4 M (positive 7), attributable to costs for the acquisition process of FTZ and Inter-Team.
• EBIT adjusted for items affecting comparability rose to SEK 122 M (120).
• The gross margin was 51.3 per cent (54.4).
• Earnings per share amounted to SEK 2.30 (2.43).
• Cash flow from operating activities amounted to SEK 176 M (79).
• Net debt was SEK 5,622 M (1,625) at the end of the period, compared with SEK 1,444 M at year-end.
• On 3 September, Mekonomen concluded its acquisition of FTZ in Denmark and Inter-Team in Poland for a consideration of EUR 404 M and the entities are consolidated from that date.

CEO comments

Milestone quarter with the acquisition of FTZ and Inter-Team and with the base business continuing to show improvement

In early September, we concluded the acquisition of FTZ and Inter-Team, which will almost double Mekonomen Group’s sales. The acquisition was part financed with a rights issue of just over SEK 1.6 billion, which was fully subscribed and was concluded in October. I would like to thank investors for your trust and confidence in Mekonomen Group and our expansion into Denmark and Poland which are important strategic moves for the Group.

Mekonomen Group’s total revenue increased 33 per cent to SEK 1,887 M (1,414) in the third quarter. Sales growth adjusted for FTZ and Inter-Team, was 5 per cent in the quarter, with positive contribution from the strong NOK in relation to SEK and an increase in the number of proprietary workshops. At the same time, sales were negatively affected by the very hot summer, which meant more workshops were closed and also closed for longer periods than in 2017. Adjusted for FTZ and Inter-Team, number of workdays (same number as the year earlier) and currency effects, revenue rose 2 per cent.

In the third quarter, MECA, Mekonomen and Sørensen og Balchen reported increased net sales compared to the third quarter last year, positively affected by strengthened NOK. Adjusted for number of workdays and currency effects MECA reported an increase in net sales, while net sales in Mekonomen and Sørensen og Balchen did not reach up to last year’s level.

EBIT in line with communicated preliminary information
EBIT for the Group amounted to SEK 118 M (127) in the third quarter, adversely impacted by items affecting comparability of SEK 4 M (pos. 7), which mainly included costs for the acquisition process. EBIT adjusted for items affecting comparability rose to SEK 122 M (120). EBIT adjusted for FTZ and Inter-Team and items affecting comparability amounted SEK 116 M (120) for the quarter, which is aligned with the preliminary information for the third quarter we communicated on 28 September.

EBIT was adversely impacted by continued weakening of the SEK against EUR and the exceptionally hot summer. In addition, an increase in the number of proprietary workshops compared with the preceding year affected the profitability negatively in the quarter.

Effect from proprietary workshops in the quarter
During the last year Mekonomen Group’s number of proprietary workshops has increased from approximately 40 workshops to just above 70 workshops. Owning a number of workshops ourselves is strategically important in order to develop our strong customer offer and to create value for our shareholders. More proprietary workshops mean increased revenue in the Group, as we also add the earnings of automotive technicians' working hours. In the third quarter, the profitability of the workshops is low due to lower demand for car service during the summer months, while the fixed costs are evenly distributed over the year.

FTZ and Inter-Team
In the third quarter, the newly acquired businesses FTZ and Inter-Team are included from September. The reported net sales and EBIT for September are comparable to last year (prior to acquisition). FTZ reported net sales of SEK 252 M and EBIT of SEK 13 M and Inter-Team reported net sales of SEK 147 M and EBIT of SEK 0 M. The Inter-Team business operates at a lower margin than the Group as a whole and we expect some EBIT margin dilution as a result of the acquisition.

Market development
We experienced lower demand for workshop services in the market in July and August. The summer months are normally weaker, but the extremely hot summer further reduced demand. Our assessment is that a large part of the demand that normally occurs during the summer months will not create pent-up demand in the autumn. The need for workshop services which was postponed has resulted in longer waiting times at the workshops in the autumn rather than increased sales.

New digital spare parts catalogue and central warehouse projects proceeding as planned
Both the work with our new digital spare parts catalogue and the work with the joint central warehouse for MECA and Mekonomen in Sweden are progressing according to plan. Our tests with low volumes of the new automation during the summer period went well and we have started our gradual ramp-up during the autumn, which implies that we are putting more and more articles into the new automation solution.

Outlook
The acquisition of FTZ and Inter-Team has strengthened our position in the Northern Europe. Forward, my focus is to enhance our competitiveness and customer offerings in all our markets and utilise the synergies we can achieve by pooling knowledge in areas such as customer relationship, efficient logistics and innovation. Even if FTZ and Inter-Team will operate as separate businesses the integration is important and the work to achieve purchasing synergies of SEK 100 M with full effect from 2021 has already begun.

The shortage of service technicians and other roles in our industry remains significant and is one of the industry’s greatest challenges. Our estimate is that the industry as a whole needs about 6,400 new employees over the next three years. Mekonomen Group is actively engaged in attracting and training new people to become automotive technicians. The high grades needed for admission to our vocational upper secondary school program ProMeister Fordon in Stockholm and Lund confirms the substantial interest in modern education for automotive technicians. The upskilling of existing technicians in, for example, electric and hybrid cars and new technology is a central pillar if we are to meet customer needs in the future with the current rapid technological progress.

I am very positive to the inclusion of FTZ and Inter-Team in Mekonomen Group and I am convinced that we have the right conditions for long-term competitiveness and profitability in all of our main markets – Denmark, Norway, Poland and Sweden.

Pehr Oscarson
President and CEO

For further information, please contact:
Pehr Oscarson, President and CEO, Mekonomen AB, tel +46 (0)8-464 00 00
Åsa Källenius, CFO, Mekonomen AB, tel +46 (0)8-464 00 00
Helena Effert, IRO, Mekonomen AB, tel +46 (0)8-464 00 00

This information is such information that Mekonomen AB (publ) is obliged to make public pursuant to the EU Market Abuse Regulation and the Securities Market Act.
The information was submitted for publication, through the agency of the contact person set out above, at 07:30 a.m CET on 8 November 2018.

The interim report is published in Swedish and English. The Swedish version is the original version and has been translated into English.