Year-end report January - December 2018

14 February 2019 07:30

2018 – Increased revenue through acquisitions, but weak conclusion to the year

1 October–31 December 2018

• Revenue rose to SEK 2,922 M (1,507). Adjusted for the acquisition of FTZ and Inter-Team, currency effects and calculated on the comparable number of workdays, revenue rose 5 per cent. Sales in comparable units decreased 1 per cent, in local currency. 
• EBITA amounted to SEK 107 M (134) and the EBITA margin amounted to 4 per cent (9). EBITA was negatively impacted by items affecting comparability of SEK 53 M (pos: 2). 
• EBIT totalled SEK 57 M (96) and the EBIT margin was 2 per cent (6). EBIT was negatively impacted by items affecting comparability of SEK 53 M (neg: 7). 
• The gross margin was 44.0 per cent (55.2). 
• Earnings per share, before and after dilution, amounted to SEK 0.18 (2.07). 
• Cash flow from operating activities amounted to SEK 46 M (246).

1 January–31 December 2018

• Revenue amounted to SEK 7,951 M (6,000). Adjusted for the acquisition of FTZ and Inter-Team, currency effects and calculated on the comparable number of workdays, revenue rose 3 per cent. Sales in comparable units declined 1 per cent, in local currency. 
• EBITA amounted to SEK 553 M (649) and the EBITA margin was 7 per cent (11). EBITA was negatively impacted by items affecting comparability of SEK 89 M (pos: 9). 
• EBIT amounted to SEK 407 M (522) and the EBIT margin amounted to 5 per cent (9). EBIT was negatively 
• impacted by items affecting comparability of SEK 89 M (0). 
• The gross margin was 49.9 per cent (54.6). 
• Earnings per share, before and after dilution, amounted to SEK 6.56 (10.05). 
• Cash flow from operating activities amounted to SEK 331 M (496). 
• Net debt was SEK 4,098 M (1,444). 
• The Board of Directors proposes no dividend (last year SEK 4,46)1).

CEO comments

2018 – Increased revenue through acquisitions, but weak conclusion to the year
The year 2018 has been marked with both successes and challenges. The successful acquisition of FTZ and Inter-Team implied that we almost doubled our size and positioned ourselves further in the consolidation of the Nordic market and took our first step into continental Europe. At the same time, I am disappointed that we have not succeeded in growing in our Swedish and Norwegian core business - selling spare parts for workshops - which is basically a stable and profitable business. Our costs need to be more responsive when there is a slower market. In addition, we acquired several smaller operations in Sweden and Norway during the year which increased our revenues but further diluted operating margins.

In the fourth quarter, the Group’s revenue increased 94 per cent to SEK 2,922 M (1,507). Adjusted for the acquisitions of FTZ and Inter-Team, sales growth was 6 per cent during the quarter, positively impacted by the several minor acquisitions and strong NOK. Sales in comparable units, namely sales adjusted for all acquisitions during 2018, declined by 1 per cent in local currency. Although I am not satisfied with the sales in comparable units, I believe we have maintained our market shares in a weak market. Sales in FTZ also decreased by approximately 1 per cent in local currency and sales in Inter-Team increased by approximately 5 per cent compared with the fourth quarter 2017 (before the date of the acquisitions).

Gross margin declined to 44.0 per cent (55.2) in the quarter. As expected, gross margin was largely affected by FTZ and Inter-Team, which have lower gross margins than the rest of the Group. Gross margin was also minor negatively impacted by cost increases due to a strong EUR and the inventory charge related to spare parts.

EBIT in line with communicated preliminary information
EBIT for the Group amounted to SEK 57 M (96) in the fourth quarter, adversely impacted by items affecting comparability of SEK 53 M (neg: 7). EBIT adjusted for items affecting comparability amounted to SEK 110 M (103), which is aligned with the preliminary information for the fourth quarter we communicated on 17 January.

Adjusted EBIT was adversely impacted mainly by lower sales in comparable units and lower gross margin. In addition, acquisitions of minor operations during the year have had negative impact on the profitability due to initially low EBIT margins.

Market development
The mild start of the winter and long Christmas holiday period was likely the main factors to explain the weak demand for car parts and workshop services in all our main markets during the fourth quarter. A trend that was typical in many parts of Europe. In January and in the first part of February we have noted that demand has stabilised. For the first half of 2019, we expect the market to again grow 1–2 per cent in the Nordic region and 4–5 per cent in Poland.

The Norwegian market has made the most progress in the transition to a fossil-free car fleet and we have begun to see changes in the Norwegian aftermarket for car parts and workshop services. Both our Norwegian and Swedish operations are active in the transition, and a large percentage of automotive technicians in our affiliated workshops are trained in electrical and hybrid vehicle technology. In Norway, MECA has in 2018 developed a certification for electric car workshops. During the first half of 2019, roughly half of MECA workshops in Norway will be certified to service, repair and inspect (PKK) electrical and hybrid vehicles. We have also gradually expanded our range to include spare parts and accessories for electric cars as demand increases.

Outlook
In 2019, our focus will remain on pursuing profitable growth in all Group companies, with an emphasis on profitability. Due to FTZ and Inter-Team, the Group's gross margin will be lower in the first three quarters of 2019 compared to 2018, and the EBIT margin of Inter-Team will reduce the Group EBIT margins.

We are now making a powerful effort to increase efficiency and adjust our cost structure throughout the Group. A cost-savings programme is commenced that aim to realise cost reductions of SEK 65 M on an annual basis, whereof SEK 30 M will be achieved from the third quarter of 2019 and with full effect from the fourth quarter of 2019. As a part of the programme we will act
on unprofitable businesses as well as streamline our organisation and prioritise projects, to the benefit of escalating the pace of our strategic projects that constitute the platform for the core business and our future growth. Since the beginning of the year, we have increased sales prices in our Swedish and Norwegian markets to compensate for the higher purchasing costs, due to a strong EUR.

The integration of FTZ and Inter-Team and the work to generate purchasing synergies of SEK 100 M as of 2021 is proceeding according to plan. The merger of MECA's and Mekonomen's central warehouses in Sweden is also proceeding according to plan and will generate cost savings of SEK 50 M as of 2020.

The Board of Directors proposes no dividend in 2019. In making this recommendation, the Board has considered how best to prioritize the use of the Company’s cash flow in light of the Company’s dual goals of reducing leverage and paying dividends. With the higher debt levels and lower than anticipated earnings in Q4 2018 the Board considered it prudent at this time to reduce the proposed dividend until the debt levels, relative to earnings improves. The Board continues to support the longer term goal of paying 50 per cent of earnings as dividends.

With the recent price adjustments, upcoming purchasing synergies, focus on profitability and with the help of the savings progam and our talented leaders and employees, I look with confidence into 2019. A year where we continue to develop our business and create added value for our customers and shareholders.

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 7:30 a.m CET on 14 February 2019.
The year-end report is published in Swedish and English. The Swedish version is the original version and has been translated into English.