Second quarter Interim report January - June 2019

23 August 2019 07:30

Stable sales - in line with a strong second quarter last year

1 April – 30 June 2019

• Net sales amounted to SEK 3,100 M (1,633). Net sales rose 90 per cent, of which 0 percentage points is organic growth.
• Adjusted EBIT amounted to SEK 280 M (217).
• EBIT totalled SEK 240 M (173) and the EBIT margin was 8 (10) per cent. EBIT was not impacted by items affecting comparability in the quarter (negative SEK 25 M).
• Positive impacted of IFRS 16 of SEK 5 M on EBIT and adjusted EBIT.
• Earnings per share, before and after dilution, amounted to SEK 2.71 (3.53).
• Cash flow from operating activities amounted to SEK 357 M (234), which was positively affected by SEK 123 M as a result of IFRS 16. The total cash flow for the period was not affected by IFRS 16.
• Net debt was SEK 4,042 M (1,652) at the end of the period, compared with SEK 4,098 M 31 December and SEK 4,185 M 31 March.
• 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 June 2019

• Net sales amounted to SEK 6,008 M (3,065). Net sales rose 96 per cent, of which 1 percentage points in organic growth.
• Adjusted EBIT amounted to SEK 494 M (316).
• Earnings per share, before and after dilution, amounted to SEK 4.39 (4.69).
• Cash flow from operating activities amounted to SEK 515 M (241), which was positively affected by SEK 253 M as a result of IFRS 16. The total cash flow for the period was not affected by IFRS 16.

CEO comments
Stable sales - in line with a strong second quarter last year

Mekonomen Group’s total net sales rose 90 per cent in the second quarter to SEK 3,100 M (1,633) due to the acquisition of FTZ and Inter-Team.

The organic net sales were in line with the strong second quarter last year, despite adverse impact of Easter falling in second quarter this year compared to in the first quarter last year. In the second quarter, sales growth remains favorable to affiliated workshops in all business areas, which is the portion of the market that we regard as strategically most important for growth.

Unlike a weaker market in large parts of Europe during the quarter, we estimate that the Swedish and Norwegian markets have grown in line with our expectations of a long-term sales growth of 1 – 2 per cent, adjusted for the Easter impact. Further, the growth in the Polish market remained strong, while the development in the Danish market was more in line with Europe in general.

The acquired companies FTZ and Inter-Team generally have, in line with our expectations, lower gross margins than the other business areas, which have had adversely effect on the Group’s gross margin. During the quarter, the Group’s gross margin was also negatively affected by customer/product mix and increased purchasing prices within MECA/Mekonomen due to the weak SEK against EUR. The margin amounted to 44.5 per cent (55.7) in the quarter.

In the second quarter, adjusted EBIT rose to SEK 280 M (217) and EBIT rose to SEK 240 M (173). Due to Easter impacts and weather conditions during the Spring season, the Group’s development over the first six months of the year provides a more comparable view of its performance instead of the quarters separated. For the first six months the organic net sales increased by 1 per cent.

Mixed development in the business areas
Inter-Team reported a strong sales growth in the second quarter 1), driven by high export sales, strong growth in the Polish market and estimated gained market shares. FTZ reported a marginally lower sales compared to second quarter last year 1), negatively affected by Easter effect and a slow Danish market in general. We estimate that FTZ retained its market shares.

Organic growth in the MECA/Mekonomen was 1 per cent in the second quarter. Adjusted for the impact of the low demand during Easter, organic growth was 2 per cent. EBIT fell to SEK 145 M (186), adversely impacted primarily by fewer workdays, low demand during Easter, customer/product mix and an increase in purchasing costs due to weak SEK.

Sales in Sørensen og Balchen were adversely affected by weak consumer sales in Norway and low demand during the Easter holiday. The organic net sales fell by 7 percent. Continued efficient cost control adjusted to lower sales resulted in an EBIT in line with last year of SEK 38 (39) M.

Focus remains on increasing profitability in 2019
During the second half of 2019, our main focus remains on increasing profitability and increasing cash flow. The cost-savings programme initiated at the beginning of the year proceeding as planned, with limited effects in second quarter. The programme will generate cost reductions of SEK 65 M on an annual basis, with full effect at the end of fourth quarter 2019.

The project to address unprofitable operations has resulted in a stabilisation of the development within the workshop equipment company Preqas and our proprietary workshops. For Mekonomen Finland, we do not yet see the same positive impact, and since this Spring we are taking further measures linked to the business model and increased efficiency. I would like to emphasize that I am not satisfied with the development in recent years when it comes to our unprofitable operations in the Group. As previously communicated, the businesses must show good profitability in the reasonable future to continue to be a part of the Group.

The work of generating purchasing synergies from the acquisition of FTZ and Inter-Team, and the merger of MECA and Mekonomen's central warehouse in Sweden, are proceeding as planned.

During the summer, we conducted a comprehensive customer survey among the Group's affiliated workshops and other workshops. The results show that availability regarding the product range, fast deliveries and close cooperation with the local branch are important parameters for the workshops. It is gratifying that it is also in these areas the workshops have been given the highest rating. The survey also shows that future confidence in growth is high, more than half of all the workshops that participated in the survey indicate that their operations will expand in the coming years.

I see that we are well equipped for the future. I look forward to the remaining 2019 and to continue developing our business in an efficient way and with our customers in focus.

Pehr Oscarson
President and CEO

1) Inter-Team and FTZ were acquired on 3 September, 2018 and no exact comparative figures have been calculated for the second quarter of 2018 as the companies before the acquisition had a different financial year than Mekonomen Group.