Interim report January – September 2024

Increased profitability and strong financial position

July 1–September 30, 2024

• Net sales increased 7 percent to SEK 4,396 M (4,124). Organic growth was 2 percent. Currency effects had a negative impact of 2 percent on net sales.
• EBIT amounted to SEK 345 M (300) and the EBIT margin to 7.4 percent (7.1). EBIT for the quarter was positively impacted by the recognition of negative goodwill of SEK 176 M (-) linked to the acquisition of Elit Polska as well as impairment of SEK -101 M (-) of intangible assets pertaining to the Poland/the Baltics business area. Items affecting comparability amounted to SEK -28 M (33) for the quarter.
• Adjusted EBIT increased to SEK 322 M (292) and the adjusted EBIT margin to 7.2 percent (6.9).
• Earnings per share before and after dilution increased to SEK 4.03 (3.11).
• Cash flow from operating activities amounted to SEK 178 M (600).
• MEKO received approval from the Polish competition authority for its acquisition of Elit Polska and thereafter completed the transaction on July 31, 2024.

January 1–September 30, 2024

• Net sales increased 8 percent to SEK 13,396 M (12,389). Organic growth was 6 percent. Currency effects had a marginal positive impact on net sales.
• EBIT amounted to SEK 776 M (804) and the EBIT margin to 5.6 percent (6.3). EBIT for the period was positively impacted by the recognition of negative goodwill of SEK 176 M (-) linked to the acquisition of Elit Polska as well as impairment of SEK -101 M (-) of intangible assets pertaining to the Poland/the Baltics business area. Items affecting comparability amounted to SEK -131 M (92) for the period.
• Adjusted EBIT increased to SEK 902 M (788) and the adjusted EBIT margin to 6.6 percent (6.2).
• Earnings per share before and after dilution increased to SEK 7.81 (7.57).
• Cash flow from operating activities increased to SEK 1,162 M (1,113).
• Net debt in relation to EBITDA1) decreased to a multiple of 2.5 compared with 2.7 at the beginning of the year.

Significant events after the end of the period

• No significant events occurred.

CEO comments:

Increased profitability and strong financial position

Summing up the third quarter, we are continuing to build a stronger MEKO: we improved profitability, consolidated a solid financial position and achieved a strategic milestone by beginning the integration of Elit Polska. Our efficiency enhancement measures are continuing while we are simultaneously strengthening inventory capacity in several markets – which creates new drivers for continued profitable growth.

Our tried-and-tested business concept is built on continual demand for functioning vehicles. Although we can feel their effects, we are relatively immune to economic fluctuations compared with other industries. Our history of experience shows that the technology shift will not impact us negatively if we succeed in transforming ourselves in pace with developments. The transformation in electric vehicles continues – albeit slightly slower – and we are seeing indications from Norway, the land of the electric vehicle, that total repair costs over the useful life of these vehicles appears to be equivalent to those for petrol- and diesel-powered vehicles. MEKO’s ambition is and remains the same: We intend to be the most complete partner for everyone who drives, maintains or repairs vehicles in northern Europe – regardless of economic conditions and the technology of the vehicle.

We safeguarded our leading position during the third quarter as well. As they did previously, market conditions varied: strong performances in Sweden and Norway while Denmark experienced somewhat more subdued conditions. We are handling weaker demand in Finland and the Baltics, and competition remains fierce in Poland with significant price pressure. We noted sales growth of 7 percent in total, of which 2 percent was organic.

Sweden/Norway drove margin improvement
The gross margin increased at the same time, due primarily to price adjustments. Above all, we see the lasting effects of efficiency enhancements in the Sweden/Norway business area, where we have been working with a strong focus on enhancing profitability throughout 2024. Sweden/Norway is also the business area contributing the most to the improvement in our underlying EBIT margin. The adjusted EBIT margin increased to 7.2 percent in the third quarter, up from 6.9 percent in the year-earlier period – an improvement despite the cost of beginning the integration of Elit Polska, which is running at a loss. I also note that the efficiency efforts in Finland once again led to a positive result this quarter – marking the beginning of a trend that I expect will continue.

The integration of Elit Polska
Late in the quarter, our main focus was on the integration of Elit Polska. Simply put, it meant we put intense effort into coordinating our business and our organizations in order to achieve synergies. The process is at an early stage, which means that most of the decisions still lie ahead.

This integration also involves an accounting standpoint in the form of a preliminary purchase price allocation. This allocation reflects that Elit Polska needs restructuring, which also resulted in the low price we paid for the company. We estimate that the integration will cost between 70 and 100 million SEK over the remaining part of 2024 and 2025, of which parts will be of investment character. In practice, the cash in hand that we took over in conjunction with the transaction will finance the cost of the integration and gradually restore good profitability. At the same time, the cash taken over has the effect of substantially improving our reported operating profit for the third quarter. All in all, we are convinced: We have now created opportunities in the highly competitive Polish market that will give us the extra influence we need to strengthen our position.

Strong financial position
I also find it gratifying that we maintained a strong financial position in the third quarter. Our net debt in relation to EBITDA was a multiple of 2.5 at the end of the period, unchanged from the end of the second quarter. This puts us in the middle of our target range, from 2.0 to 3.0. We thereby stand on solid ground as we enter the final quarter of the year, which as a rule is a somewhat slower period.

Major projects ahead of 2025 provide opportunities for growth
It has now been a year since we announced our initiative for building a stronger, more profitable MEKO. As we have seen in 2024, we have made some progress in these efforts, but we are not finished. We are continuing to focus on optimizing and enhancing operational efficiency in all markets, in parallel with preparations for commissioning new central warehouses in Norway, Denmark and Poland in 2025 as well as the refurbished central warehouse in Finland. Additionally, we are working on implementing a new business system. The coming year will thus be a challenging one – but it will give us a firmer foundation for continued profitable growth in the future.

Mobility Barometer: A strong belief in the future of the car
If we ask the residents of the Nordic countries about the future specifically, they believe that cars will continue to play a major role. And an overwhelming majority believes that the best way to be an environmentally conscious car owner is to service and repair their cars for as long as possible. These results are presented in the 2024 Mobility Barometer, the most extensive mobility study in the Nordic region, which we conduct every year and is published in the third quarter.

Our sustainability toolkit is being upgraded to the highest level
In conclusion, I would like to note that after the end of the third quarter we received a confirmation of the sustainability efforts we have been implementing in MEKO. For the first time, we were awarded the highest sustainability rating, AAA, by the leading international rating institute MSCI in their ESG rating. Only slightly more than one tenth of all comparable companies in the world achieve this level. The factors behind this upgrade include deliberate efforts on employee issues, and corporate governance that is considered to be well aligned with investors’ interests. This inspires us to continue in the same direction.

Pehr Oscarson
President and CEO

---