Year-end report January - December 2020

12 February 2021 07:30

Significant improvement in profitability through focus on costs

1 October–31 December 2020

• Net sales declined 3 per cent to SEK 2,879 M (2,954). Organic growth was flat. Net sales were negatively impacted 5 per cent due to currency effects.
• Insurance compensation of SEK 56 M is included in earnings for the quarter.
• Adjusted EBIT amounted to SEK 287 M (149) and the adjusted EBIT margin was 10 per cent (5).
• EBIT totalled SEK 260 M (104) and the EBIT margin was 9 per cent (3). EBIT was positively impacted in the quarter by items affecting comparability of SEK 11 M (neg: 6).
• Earnings per share, before and after dilution, amounted to SEK 3.29 (1.00).
• Cash flow from operating activities amounted to SEK 373 M (202).
• Net debt was SEK 2,673 M (3,709) at the end of the period, compared with SEK 2,964 M at 30 September 2020.
• Covid-19 had a limited impact on the quarter.

1 January–31 December 2020

• Net sales declined 3 per cent to SEK 11,511 M (11,842). Organic growth was negative 1 per cent. Net sales were negatively impacted by currency effects of 3 per cent.
• Adjusted EBIT amounted to SEK 937 M (874) and the adjusted EBIT margin was 8 per cent (7).
• EBIT totalled SEK 738 M (705) and the EBIT margin was 6 per cent (6). EBIT was negatively impacted by items affecting comparability of SEK 44 M (neg: 11).
• Earnings per share, before and after dilution, amounted to SEK 7.67 (7.34).
• Cash flow from operating activities amounted to SEK 1,625 M (1,142).
• The Board of Directors proposes no dividend (last year 0.00).
• Covid-19 affected the period negatively.
• Data breaches affected the year, but insurance compensation totalling SEK 63 M largely compensated for the financial impact.

CEO comments

We conclude a challenging year with a significant improvement in profitability and stable demand for our products and services in the fourth quarter. Our financial position has improved through strong cash flow and lower net debt/equity ratio. This comes as a result of our diligent and focused work of lowering our costs in combination with our digital capabilities and strong market position. The rise in the spread of Covid-19 and the reintroduction of national restrictions in our markets has had a limited impact on our business in the quarter. I see this as confirmation of the strength of our operations, with a robust business model and flexible organisation that has the ability to effectively manage unexpected situations. I am proud of the determination and commitment demonstrated by all our employees. Looking forward, we can see clear signs that we have further strengthened our position in our markets during the year and see great potential for continued profitable growth.

Stable demand despite rise in spread of Covid-19
The fourth quarter was characterised by continued healthy demand in most of our markets, despite the increased spread of Covid-19 and reintroduction of national restrictions. Organic net sales growth was unchanged, while reported growth was affected by currency effects, ending at a negative 3 per cent. Following a slightly cautious start to the quarter, activity has gradually improved and clearly stabilised in the latter part of the quarter. This reflects favourable underlying demand for our products and services, even if market developments in the short-term remain difficult to assess. Our main priority is to preserve the health and safety of our employees and customers, while we continue to strive to reduce the impact on our operations. We achieve this by taking various preventive measures and through initiatives to stimulate demand.

Significant improvement in profitability through focus on costs
Our determined work resulted in a sharp improvement in profitability in the fourth quarter. EBIT more than doubled to SEK 260 M (104) and the EBIT margin rose to 9 per cent (3). EBIT includes items affecting comparability of SEK 11 M (neg: 6) linked to the divestment of a property in Denmark and the reversal of a restructuring reserve related to the closure of the central warehouse in Eskilstuna. Other operating revenues and EBIT were positively affected by the payment of insurance compensation of SEK 56 M with reference to loss of sales following the data breache that the MECA/Mekonomen business area was impacted by in the spring of 2020. The structural initiatives and extensive measures implemented to increase efficiency have significantly improved profitability. The gross margin improved to 45.9 per cent (44.1), with positive contribution from the previously implemented currency-related price increases together with a slightly weaker EUR.

Adjusted long-term financial targets
In December, the Board of Directors resolved to update the long-term financial targets and our dividend policy for operations, with a clearer link to our strategy. The Group’s targets are to achieve:

• An average annual sales increase of at least 5 per cent, through a combination of organic growth and smaller acquisitions.
• Adjusted EBIT margin of 10 per cent.
• Net debt/EBITDA in the range 2.0-3.0 times.

Our dividend policy means Mekonomen Group has an unchanged goal to pay dividends corresponding to not less than 50 per cent of profit
after tax to the shareholders, but consideration should be given to the company’s potential acquisition opportunities, financial position,
investment needs and future prospects.

Strong financial position but no dividend proposed
We are pleased with our recent operational performance and satisfied that we have strengthened our financial position. Cash flow from operating activities rose to SEK 1,625 M (1,142) and our cash and cash equivalents increased. Our net debt/EBITDA decreased to 2.54 (3.68), at the end of 2020, which is within the updated target range and offers an adequate headroom to our covenants. Mekonomen Group has navigated the challenges of 2020 extremely well and is positioned for future growth but there remains considerable uncertainty in some of our markets related to the future impact of Covid-19. The company remains committed to its long term dividend policy; however, out of an abundance of caution, the Board does not believe now is the time to reinstitute a dividend. The Board will reconsider the matter when the situation has stabilized in all our markets and all factors influencing the use of cash have been considered.

Good position for tomorrow’s market
2020 demonstrated that Mekonomen Group stands strong even in challenging times. Our business model is solid and timeless – we enable mobility, which is a pillar of every society. As vehicle technology becomes greener and customer behaviour changes, new business opportunities are also created, where service needs not only remain but also evolve. Today we hold a leading position in our markets and we will build on this in our work to become even more sustainable and a stronger company moving forward. The work to integrate and realise full synergies from our most recently acquired operations, FTZ and Inter-Team, is now fulfilled and we can conslude a year with improved profitability in both business areas. Furthermore, Sørensen and Balchen has showed a strong earnings trend during the year and the structural initiatives implemented within MECA/Mekonomen have created good prospects for increased profitability down the road. Overall, we are well equipped for the future and I am looking forward to presenting our strategy in more detail and the way forward at our capital market day on 25 February. Mekonomen Group is to be the best and most comprehensive partner for everyone that services and maintains cars in our markets – and we will continue to deliver in line with our strategy for long-term and profitable growth.

Pehr Oscarson
President and CEO

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 contactperson set out above, on 12 February 2021 at 07:30.

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