Year-end report January - December 2019

07 February 2020 07:30

Stable performance in the fourth quarter

1 October–31 December 2019

• Net sales amounted to SEK 2,954 M (2,864). Net sales rose 3 per cent, of which 1 percentage point in organic growth.
• Adjusted EBIT amounted to SEK 149 M (148) and the adjusted EBIT margin was 5 per cent (5).
• EBIT totalled SEK 104 M (57) and the EBIT margin was 3 per cent (2). EBIT was negatively impacted in the quarter by items affecting comparability of SEK 6 M (neg: 53).
• Positive impact of IFRS 16 of SEK 6 M on EBIT and adjusted EBIT.
• Earnings per share, before and after dilution, amounted to SEK 1.00 (0.18).
• Cash flow from operating activities amounted to SEK 202 M (46), which was positively affected by SEK 128 M as a result of IFRS 16. The total cash flow for the period was not affected by IFRS 16.
• Net debt was SEK 3,709 M (4,098) at the end of the period, compared with SEK 3,814 M at 30 September 2019.

1 January–31 December 2019

• Net sales amounted to SEK 11,842 M (7,779). Net sales rose 52 per cent, of which 2 percentage points in organic growth.
• Adjusted EBIT amounted to SEK 874 M (599) and the adjusted EBIT margin was 7 per cent (8).
• EBIT totalled SEK 705 M (407) and the EBIT margin was 6 per cent (5). EBIT was negatively impacted by items affecting comparability of SEK 11 M (neg: 89).
• Positive impact of IFRS 16 of SEK 20 M on EBIT and adjusted EBIT.
• Earnings per share, before and after dilution, amounted to SEK 7.34 (6.56).
• Cash flow from operating activities amounted to SEK 1,142 M (331), which was positively affected by SEK 507 M as a result of IFRS 16. The total cash flow for the period was not affected by IFRS 16.
• 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.
• The Board of Directors proposes a dividend of SEK 0,50 (0.00) per share.

CEO comments
Stable performance in the fourth quarter

We end a year in transition with modest net sales growth in the fourth quarter, as a result of the weak market caused by the unusually mild winter conditions. Adjusted EBIT was unchanged compared with the year-earlier quarter. We have successfully integrated the acquired businesses Inter-Team and FTZ as well as focused our work to lower our leverage throughout the year. We have a solid business, operationally and financially, with a strong position in our markets going into 2020. Based on the progress, the Board of Directors proposes to reinstate dividends and will propose SEK 0,50 per share to the AGM, with continue focus on deleveraging going forward.

Continued growth despite weak market
Net sales grew by 3.2 per cent to SEK 2,954 M (2,864) in the fourth quarter, compared with the year-earlier period. The unusually mild start of the winter season and the extended Christmas holiday period are the main explanation of the weak demand for car parts and workshop services in most of our markets. We estimate that these effects combined, affect growth negatively by around 2 per cent in Sweden and Norway in the quarter.

The organic growth was 1 per cent in the fourth quarter and 2 per cent for the full year, mainly driven by continued solid growth in Poland but weighed down by the soft market in Scandinavia in the latter part of the year. We believe we have maintained or improved our market share overall in a generally weak market.

Stable profitability
Group gross margin was stable at 44.1 per cent (44.0) in the fourth quarter, despite continued negative impact from customer and product mix changes and higher purchasing costs as a result of the strong EUR. Going forward we will benefit from increased sales prices in our Swedish and Norwegian markets, implemented in December to compensate for the higher purchasing costs.

EBIT in the fourth quarter amounted to SEK 104 M (57) and the EBIT margin improved to 3.5 per cent (1.9). Adjusted EBIT was SEK 149 M (148) and the adjusted EBIT margin 5.0 per cent (5.1). Adjusted EBIT was negatively impacted by low organic growth but compensated for by our continued focus on cost control within the Group.

Strategic projects and initiatives
Our work to achieve purchasing synergies of SEK 100 M with full effect from 2021 is progressing according to plan and as of the end of the fourth quarter we have realized approximately SEK 60 M, including volume effects.

The cost-saving programme, initiated in the first quarter of 2019, is proceeding favourably.

The project of merging our central warehouses in Sweden is proceeding according to plan and is expected to generate cost savings of SEK 50 M annually, with full effect at the end of 2020. During the quarter we continued the pilot where five MECA branches and the regional MECA warehouse in Norway received their supply from Strängnäs. The next phase will be to gradually transfer the supply of MECA branches from the warehouse in Eskilstuna to Strängnäs, with focus in the process to minimize risk and ensure high service levels towards our customers.

Summary and outlook
To summarize, I am reasonably satisfied with our financial performance in 2019, given the weak market climate in the latter part of the financial year. Operationally, we have put in a lot work integrating Inter-Team and FTZ as well as in our project of merging our central warehouses in Sweden. We have a solid platform entering 2020, adapted to pursue profitable growth in all parts of our business, largely through our ongoing strategic projects and initiatives. In line with our ongoing strategy work, we will put even more focus on the conceptualisation of our business and have, in line with this decided, to extend Group Management with a Director of Business Development and Strategy as of today.

The Board of Directors proposes a dividend per share totalling 0.50 SEK in 2020, based on our improved financial position. We reported positive cash flow in 2019 and our debt ratio improved throughout the year, ending the financial year with a net debt/EBITDA multiple of 3.7 times (6.4).

I have a positive long-term view on Mekonomen Group, given our strong position in our markets, our talented leaders and employees and our strong focus on profitability together with the recent price adjustments. Our drive to continue to develop our business will create value for both our customers and shareholders.

Pehr Oscarson
President and CEO, Mekonomen Group