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Mekonomen AB reported its highest adjusted EBIT in company history for the full year 2024, with a 13% increase over 2023. The company maintains strong profitability with a 44.7% gross margin and has consistently raised dividends for three consecutive years. Despite these record results, the company’s stock price fell by 5.31% in early trading, closing at 128.4 SEK, as investors reacted to mixed signals from the earnings call and market conditions.
InvestingPro analysis reveals several positive indicators for Mekonomen, with 5 additional exclusive ProTips available to subscribers.
Key Takeaways
- Mekonomen achieved the highest adjusted EBIT in its history for 2024.
- The company reported flat organic growth in Q4 2024 compared to the previous year.
- Market conditions in Poland and Finland remain challenging.
- The stock price dropped by 5.31% following the earnings announcement.
- Warehouse automation projects are set to complete in 2025.
Company Performance
Mekonomen’s performance in 2024 was marked by significant financial achievements, including a 13% increase in adjusted EBIT compared to 2023. The company generated revenue of $1.8 billion in the last twelve months, with a healthy 9.2% revenue growth rate. The company experienced an overall growth of 8%, with organic growth contributing 4%. Q4 2024 saw flat organic growth, highlighting challenges in maintaining momentum during the last quarter of the year.
Financial Highlights
- Revenue for 2024: Not specified in the earnings call summary.
- Adjusted EBIT: Up 13% compared to 2023.
- Organic growth: 4% for the year, flat in Q4 2024.
- Total (EPA:TTEF) growth: 8% for the year, 6% in Q4 2024.
- Effective tax rate: 25%, expected to normalize to 23%.
- Net debt reduced by SEK 400 million.
Market Reaction
The stock price of Mekonomen fell by 5.31% following the earnings announcement, reflecting investor concerns despite the company’s record EBIT. The stock is currently trading at 128.4 SEK, down from its previous close of 135.6 SEK. According to InvestingPro Fair Value analysis, the stock appears undervalued at current levels. The company has shown strong momentum with a 31.4% price return over the past six months. The decline puts the stock closer to its 52-week low of 103.2 SEK, indicating cautious market sentiment.
Outlook & Guidance
For 2025, Mekonomen plans to focus on completing its warehouse automation projects in Denmark, Norway, and Finland, which are expected to significantly enhance operational efficiency. The company maintains a strong financial position with liquid assets exceeding short-term obligations and an overall "GOOD" Financial Health Score according to InvestingPro’s comprehensive analysis. The company also aims to expand its market presence and improve efficiency, with a proposed dividend of SEK 3.9 per share and an expected tax rate reduction to 23%.
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Executive Commentary
CEO Per Oskarsen highlighted the company’s strategic focus, stating, "We reached the highest adjusted operating profit in our history in 2024." He emphasized the priority of profitability over growth, noting, "We have prioritized profitability over growth." Looking ahead, Oskarsen remarked, "2025 will be an eventful and intense year, and we are well prepared."
Risks and Challenges
- Market conditions in Poland and Finland remain difficult due to price pressure and weak macroeconomic factors.
- Seasonal variations and a mild winter have impacted sales.
- The company faces potential challenges in integrating Elite Polska and restructuring its Norwegian operations.
Q&A
During the earnings call, analysts inquired about the costs associated with warehouse transitions, to which the company responded that these costs would be minimal. Questions also focused on the potential for improved inventory management and the company’s continued emphasis on efficiency and market growth.
Full transcript - Mekonomen AB (MEKO) Q4 2024:
Conference Moderator: to the MECO q four twenty twenty four report. For the first part of the conference call, the participants will be in listen only mode. During the questions and answer session, participants are able to ask questions by dialing 5 on their telephone keypad. Now I will hand the conference over to the speakers, President and CEO, Per Oskarsen and CFO, Krister Johansson. Please go ahead.
Per Oskarsen, President and CEO, Mirko: Thank you. Good morning, everyone, and welcome to Mirko’s presentation of our year end results for 2024. As said, I’m here with our CFO, Christian Johansson, and together we will walk you through our performance and current position. 2024 was a year when we continued to build a strong EMEAQ. We announced these initiatives in November 2023 with a clear goal that we want to become more profitable by achieving more synergies, savings and optimizations.
We approach this work from a position of strength. Meeako is, the market leader in Northern Europe, and we strive to be the most comprehensive partner for everyone who drives, repairs and maintain vehicles. We rely on a stable business model adapted to all types of vehicles regardless of fuel type. Looking back at 2024, we can confirm that our efforts are paying off. We reached the highest adjusted EBIT in our history.
Adjusted EBIT was up more than 13% compared to 23%. The improvement has occurred despite costs related to integrating Elite Polska, a milestone in our videographic expansion. We have also secured a strong financial position. Our leverage stands at 2.6%, well within our target range. In addition, we improved cash flow driven by stronger results and good working capital development.
And as planned, we have prioritized profitability over growth, yet we achieved a steady growth of 8%, of which 4% was organic. We have also reduced costs as share of our sales and maintained our gross margin. This development enables the board to propose a dividend of SEK3.9 per share to be paid into equal installments, half in May and half in November. Looking at Q4 in isolation, we conclude that the market conditions varied across the business areas. As I mentioned on the Q3 call a couple of months ago, Q4 tends to be a bit softer unless there is an unusually harsh winter.
This time, we saw a more typical start to the winter season. And in the summer, this affected our organic growth, which was flat compared to Q4 twenty twenty three. But in total, we grew 6%. We also note a robust EBIT development in the quarter and our adjusted EBIT increased slightly. And Christo will go into more details just in a few minutes.
But before that, I’d like to give you a short update on some of our key projects for 2025. So let’s move on to slide three. And as you know, we are in the final stages of completing our new automated center warehouse in Denmark. This facility also houses our Danish headquarters and training centers. In short, it will streamline our goods handling and improve service levels for customers across Denmark.
And just to give you a glimpse of the capacity, today an employee can pick 20 to 30 order lines per hour, but a person at the automated picking station can process up to 10 times as many. In addition, we are able to enhance our customer offering, for example, through later cutoff times for same day deliveries. The facility is complete and we’ll receive the keys in the end of this month. And we will then begin the move in process and expect the warehouse to be fully operational in August. We are facing similar important steps in Norway.
So let’s have a closer look on slide four. Actually, tomorrow, we will receive the key to the building as you see, the building you see in this picture, our new automated central warehouse outside Oslo. Until now, our Swedish central warehouse in Strennes has supplied Norway, but this new logistics center will be dedicated for Norway and significantly improve both service levels and efficiency in the market. The investment into our out of store automation is, as far as we are aware, the largest new build in Norway. We expect approximately 100% overall warehouse productivity gain per warehouse worker with the new system.
With this investment, we can house around 100,000 automatically retrieved storage locations. We are also well placed for future growth. Everything is progressing according to plan and we expect the warehouse to be fully operational by June. And then let’s move on to slide five. Our central warehouse in Helsinki has needed renovation.
And with a new outer store system, we will significantly improve performance. Efficiency has measured by order lines picked per warehouse worker in an hour and is expected to increase by 80%. We have loaded the automation with no less than 65,000 empty bins. Considering weight and space constraints, we foresee up to 70% of the SKUs could pass through the automated workloads. New consolidation area significantly reduces the use of packing materials and ensures services that better meet customer demands.
The renovation has gone as planned, even slightly ahead of schedule and the warehouse will start early operations now in Q1. In sum, we are heading into a eventful and intense 2025 And everything is progressing as expected and we are well prepared for the next step. And then let’s move to slide six and some positive news about our board of directors. And at our extraordinary general meeting in December, Mirko’s board was strengthened with two new members. Jan Werner is an experienced leader with extensive expertise in the independent automotive aftermarket.
He has previously served as CEO of major industrial and retail companies and holds several board positions. And then, we have Marie Bjorklund, who brings deep financial expertise and is currently the CFO of the publicly listed company Know It. She has had several similar roles in the past and has also worked as an auditor. We’re very pleased to welcome Jarn and Maria to the board and the great valued expertise
Krister Johansson, CFO, Mirko: described, we saw a somewhat modest quarter closing out a strong year. And in our last earnings call, we mentioned that Q4 is, financially speaking, seldom the strongest quarter. That was true in 2023, where we had some help from proper winter. And it’s also true for 2024, which has been warmer. In combination with many days off or partly off, Q4 was sales wise an uphill battle.
This comes through in the weak organic growth, which was well below our 5% target. In isolation, a single quarter is easily affected by specific items. In Q4 twenty twenty three, we provisioned for large changes in Norway, explaining the low EBIT in that comparison period. This year, q four was burdened by updated assessments of full year tax explaining the low EPS. Now on a full year basis, the effective tax rate was 25%, which is a bit above the 23% we expect going forward.
There are signs of strength in Q4, as I will illustrate in more detail in a minute. Gross margins improved. And we are also pleased to see healthy cash flow where working capital continue to be relatively helpful. Looking at the year as a whole, we see a development which is well aligned to our financial targets. Organic growth was close to 5% up.
Adjusted EBIT increased by 13% versus our target of 10%. And this increase was also converting into cash flow, which was up by 10%. That in turn helped leverage and dividends both matching the targets we have committed to. Turning to page eight. Gross margins has had a positive development in 2024.
And this is despite incorporating the business of Elite, which on its own correspond to a dilution of almost a percentage point. Mix and currency effects were modest, and the improvement is stemming from price adjustments. I would want to add two observations here on this note. So firstly, price adjustments include benefits coming from improved purchasing. And improved purchasing is quite an important area, of course.
And ultimately, it’s an enabler of organic growth. Secondly, the average development hides significant variation by market. In fact, moving on to the next page, page nine, this page shows the adjusted EBIT bridge and the development in Poland, which is a negative outlier, is in part linked to pricing. I will get back to more details on Poland in a later page. Finland is mostly a matter of a weak comparison period.
But for Sweden and Norway, the improvement is certainly both real and quite encouraging. And this is primarily the result of cost savings across both Norway and Sweden. Turning to page 10 and leverage, the picture is similar to previous quarters. I mentioned earlier that Q4 is typically not the strongest quarter and that seasonal trend is true also for cash flow, in fact. In addition there, too, it’s worth noting that in Q4, we have paid dividends of SEAC 104,000,000.
And we have been running with a fairly high investment rate, SEK84 million worth of CapEx in the quarter with SEK27 million of non capitalized investments into our ERP program on top. So this, when you add it together, is above what I would view as a normal level. Still, looking at the full year, we have reduced net debt by, say, SEK 400,000,000. Leverage is now at 2.6 or a bit lower if you adopt the bank covenant definition, which exclude IFRS 16 lease liabilities. So naturally, reducing debt lowers interest expense.
But there are also other factors at play here. This becomes visible on page 11, which compares interest expense reduced by interest income between 2023 and ’twenty four. We spoke about net debt being reduced. And I believe no one will have missed interest rates coming down, although I should mention that we hedge a fair share of our financing to avoid any unpleasant swings. Finally, lease agreements as accounted for under IFRS 16 also come with an interest expense component.
These have grown, and they have offset reductions from the first two items. Looking ahead into 2025, ’1 should, in simple terms, expect more of the same lower net debt, somewhat lower net interest rates, which in turn will be offset by increased lease liabilities. As reiterated a few times, our facilities in Denmark and Norway are not CapEx on our balance sheet. But as we move in during the first half of twenty twenty five, we will recognize new lease liabilities. These are fairly long contracts, as you can imagine.
We will add up towards SEK 1,000,000,000 in lease liabilities. By extension, this will also increase the IFRS 16 interest component by approximately SEK 60,000,000 on an annual basis. Let’s now also have a quick look at key financials by business area, starting with Denmark on page 12. The challenging seasonal effects already mentioned were clear in Denmark, and this contributed to a quarterly result which was not quite up to our expectations. While it’s slightly better on a full year basis, it’s also clear that we need to pursue further efficiency improvements.
Automation is one, but it’s not the only avenue. On the bright side, gross margins improved noticeably in Denmark during the year. Turning to Finland on page 13, I already mentioned that the comparison quarter is a special one. Better than to look at the run rate in absolute terms. And this level is, of course, not an acceptable one, not even during the soft macro conditions like the ones we’ve currently seen in Finland.
This is also the reason why we have significant efficiency improvements underway. And I believe that photos Per shared earlier show that we have come a long way even though we are yet to reap any significant benefits. With regards to Poland on page 14, the comparison is naturally affected by the inclusion of Filipolska, which is running at a loss, as you know. This is as planned. And you may recall the massive discount which materialized into negative goodwill of SEK176 million in Q3.
Furthermore, we described in the Q3 earnings call how the integration work will continue throughout 2025 at a total cost of 70 to 100,000,000 SEK. In q four, we spent, say, 15,000,000 SEK of this with three quarters being CapEx, mostly related to IT, so servers, firewalls, things like that. The integration work continues at full speed, now focusing both at branch level and headquarter. Separately, as mentioned earlier in this call, conditions in Poland are tough. This includes price pressure, inflation and reduced exports.
We see this also in our pre existing business, Interthink. All in all, these conditions also pave way for continued consolidation in Poland. We will be part of that. Business area, Sweden and Norway on page 15 was not immune to the broader market condition in the fourth quarter but has nevertheless performed very well in 2024. As communicated, we have prioritized restoring profitability.
We are proud to deliver a 50 plus percent increase in adjusted EBIT both in the quarter and the full year. Of course, with such a profitable business, we are keen to see continued growth in the years ahead. And this is why we now invest into the new warehouse in Norway. As Para mentioned, this will free up capacity also in Sweden since Stegnais is currently serving both markets. Finally, on Page 16, we illustrate the strong performance of business area Sonne Senebachen.
And unlike in some of the other business areas, 2024 has been a year with full focus on customers, operations and incremental improvement. And it’s perhaps not surprising but indeed encouraging to see this focus paying off. Healthy organic growth, sales exceeding SEK1 billion for the first time, and equally important, the strong margins have been maintained. So on that happy note, I leave it back to you, Per.
Per Oskarsen, President and CEO, Mirko: Thank you, Christen. Well, to sum it up, we reached the highest adjusted operating profit in our history in 2024. Adjusted EBIT was up more than 13% compared to ’twenty three. Percent. This improvement has occurred despite costs related to integrating Elite Polska, a milestone in our geographic expansion.
We have also secured a strong financial position. Our leverage stands at 2.6%, well within our target range. In addition, we have improved our cash flow driven by stronger results and good working capital development. And as planned, we have prioritized profitability over growth, yet we have achieved a steady growth of 8%, of which 4% was organic. We have also reduced costs as share of sales and maintain our gross margin.
This development enables the Board to propose a dividend of SEK3.9 per share to be paid into installments during 2025. ’20 ’5 will be an eventful and intense year and we are well prepared. So that will be all for me. Thank you for listening and now we will open up for questions.
Conference Moderator: The next question comes from Mats Liss from Kepler Cheuvreux.
Mats Liss, Analyst, Kepler Cheuvreux: Yes. Hi. Thank you. A couple of questions. Well, first, I mean, you have all these measures that you implement moving from to a more sort of efficient Rabi S.
T. V. I guess Norway is on their way and Denmark and Finland is starting up now. What will the impact be sort of during the first half of the year? I mean, they will be fully implemented this new warehouse is mid year sort of and will there be some extra costs here in the first half to move from one to the other?
Krister Johansson, CFO, Mirko: Good morning, Mats. Good question. So I think as we’ve mentioned in one of the previous calls, this process of moving into a new facility is, of course, not something that happens overnight. And in simplified terms, you can think of this as a six month process. So from starting one to leaving the other is like a six month period.
During that period, we will have some double rents. We’ve not specified exactly how much. We will make sure that this is clear in the communication in quarters to come. There are also some costs associated with moving goods, but this is not massive. In terms of project cost, I mean, these are not very material.
If you look at the previous quarters, you will see that we have identified some such cost, but these are single digit SEK. So that’s not very material. Other than that, of course, I mean, we are planning for uninterrupted operations. So we’re moving kind of slow in a sense in order to make sure that there are no disruptions to operations. Peder, what do you want to add?
Per Oskarsen, President and CEO, Mirko: No. I think that covers the question.
Mats Liss, Analyst, Kepler Cheuvreux: Sounds good. And I guess you will have sort of opportunities going forward to reduce indentures when you are fully up and running and can sort of rely that you are able to supply your customers well with the new facilities.
Per Oskarsen, President and CEO, Mirko: Yes, you’re completely right. And that is both when we will when it’s all down, we will have more optimized inventory, I would say. If it’s lower, then that’s another discussion, but it will be more optimized for each market. And with that, also, we can have a better availability and, of course, converting to better sales.
Mats Liss, Analyst, Kepler Cheuvreux: And then secondly on sales there, I mean you mentioned the impact of well, in Norway where you have moved through to a more sort of more business oriented distribution structure and you have those on consumer related sales there. Was that fully impacting you in the fourth quarter or are there sort of more effects in the first quarter and second of this year?
Per Oskarsen, President and CEO, Mirko: Well, it’s a good question. I don’t think I have the exact answer when we because this project was gradually implemented during the year. So I think that you will see maybe some negative impact in the beginning of the year maybe but it shouldn’t be much. So it’s I mean the big hit you have seen in Q4. And there is also things now where we can improve, start to get the benefits so that we actually improve the availability.
So we also expect some recovery in those projects.
Mats Liss, Analyst, Kepler Cheuvreux: And I mean consumer the consumer segment is quite limited. So I mean but would you say that you keep your market share in the business to business segment?
Per Oskarsen, President and CEO, Mirko: Yeah. And we the let’s say the decrease in sales is more that our customers buy a little bit less because we have been converting warehouses, new numbers and its catalogs. But all those things start to be in place now. So we didn’t lose any customers.
Mats Liss, Analyst, Kepler Cheuvreux: Okay, great. And then well, pricing here, I mean, previously, you have been able to I mean, the Swedish klumec is somewhat soft, have been for a while. And I guess that and most of the klumec are made in euros. Are there any sort of impact there for you starting 2025?
Per Oskarsen, President and CEO, Mirko: I think we have a gross margin which is stable now and I think we are well priced through the current currency. Of course, it will if it will get much worse, then we will be in a situation that we might need to increase prices and so on. But we I would say that we’re on a stable level at the moment.
Mats Liss, Analyst, Kepler Cheuvreux: And finally, just well, in the tax line there, you had some catch up to be down due to, well, somewhat underestimated tax charges previously during the year. Could you give some sort of indication what running level or what level we should expect for 2025?
Krister Johansson, CFO, Mirko: Yes. No, of course, in this sense Q4 is quite an outlier and there’s been as you know, a few call it odd transactions in the year with impairments and goodwill and whatnot. And this is why the kind of the prioritization of tax is not in the previous quarter has not been kind of at the level of the full year effective tax rate. So where we ended up for 2024 was an effective tax rate of 25%. That’s obviously high.
If we look into the future, we do not expect the level that high. We think a fair reflection of future periods would be closer to 23%.
Mats Liss, Analyst, Kepler Cheuvreux: Okay, great. Thank you.
Krister Johansson, CFO, Mirko: Thank you.
Per Oskarsen, President and CEO, Mirko: Yeah. And then we have some questions from the chat. The question is if we expect an extra cost in the common quarter related to the new warehouses And we don’t not as we see at the moment because we are doing this according to plan and according to the business cases. So let’s continue with that view as long as possible. I don’t know but we don’t expect anything to pop up.
And then there was another question also from Stefan. Do you expect the relatively mild winter in Nordics this year to have a negative impact on sales also in Q1? Good question. We as we saw in Q4 when it’s extremely good winters we have a boost in sales which was the case last winter. We but we also try to mitigate that with other products and other services.
So we’re not guiding specifically for Q1.
Conference Moderator: The next question comes from Andreas Lundberg from SEB.
Andreas Lundberg, Analyst, SEB: Starting with Sweden and Norway, we have seen cost upon that large efficiency gains. Can you update me or us on the status on the first, let’s say, efforts were already there? And then what else do you see in Sweden, Norway when we move into 2025? Thank you.
Per Oskarsen, President and CEO, Mirko: I mean we have done a lot of it and it’s mostly the fact is mostly so far in Sweden where we have reduced costs is efficiency. Of course with the new logistics setup we will be able to grow more in both countries. We will have a possibility for Norway to have a better local assortment which will be helpful for that business. And then we I mean in Norway it was the big project with merging lots of branches and that project was closed. So I don’t expect anything more but we will continue.
The idea of building a strong America is not to be ready to continue. So we will search for more and more this course.
Andreas Lundberg, Analyst, SEB: Would you say that if 02/1974 was mainly about efficiency gains, it’s more about sales growth in Sweden Norway when we move forward?
Per Oskarsen, President and CEO, Mirko: Yes, I think it will be a mix of both. There’s still area we look at cost and efficiency. But maybe a little bit more focusing on the market.
Andreas Lundberg, Analyst, SEB: Okay, cool. And also can you update me on the Polish business? I think you did that last quarter, two quarters ago, and the effects from the acquisition. How we should see that in 2025?
Per Oskarsen, President and CEO, Mirko: Yes. But as we said, there will be costs related to the integration and part of that we think 15,000,000 or something we had in Q4. We said that it will cost in total 70 to 100 and that is it is what we still expect. And it will take at least for this full year until we are complete with that integration.
Mats Liss, Analyst, Kepler Cheuvreux: But you also said that these are
Andreas Lundberg, Analyst, SEB: underlying development in the acquired unit. Can you update me on that?
Per Oskarsen, President and CEO, Mirko: Yeah. It’s I mean it was loss making and it still is. But that’s also part of the integration is to close the branch which is not performing, merge with the existing branches. So that is the part of the this work is to make it profitable. Then Poland has at the moment a best year at least been tough due to competition.
I would say both our entities, Filipinos and his teammates, it’s more or less keeping the market shares locally. Then we have the export business a little bit up and down for from time to time.
Mats Liss, Analyst, Kepler Cheuvreux: Okay. And
Andreas Lundberg, Analyst, SEB: on Finland, you’ve done a lot there over the past years here. What remains to be done? We
Per Oskarsen, President and CEO, Mirko: We We actually need some kind
Andreas Lundberg, Analyst, SEB: of recovery or relief there.
Per Oskarsen, President and CEO, Mirko: Definitely. And the first they are actually one of the first warehouse projects that will be live at least starting the operation. We’ll see if they are also fully operational, but they will start already now in the next coming weeks. So that is a very important part of increasing the efficiency. But we still have all the people who are running it manually, but they will be released here during the spring.
So that’s one area. And then we also have worked with the reorganization and I would say this year also we will increase the effort to gain market
Mats Liss, Analyst, Kepler Cheuvreux: first.
Andreas Lundberg, Analyst, SEB: And lastly, on the warehouses, I think you touched upon it. But is it fair to assume that you will run double warehouses into you know in 2025 basically?
Krister Johansson, CFO, Mirko: Not for the full yearness. Perhaps. But you could expect that there would be six month overlap and during that figure there will be some double rent. Rent. We will do our best to be clear with these impacts in the quarters to come.
But of course, the reason for moving quite slow is to not interrupt operations, which is priority number one here.
Andreas Lundberg, Analyst, SEB: Cool. Thank you so much.
Per Oskarsen, President and CEO, Mirko: Okay. Great. And then we have in the chat we have a question from Johan on Motor Magazine that You have invested in one stop shop concept with tires and glass in addition to service and repairs. Are there any other areas you see value in folks in the close future? Yes, we do that.
And there is big difference in the different business areas and the markets. So we try to use best practice in order to do that. Exactly which area and when, I will keep that as a surprise for our competitors.
Conference Moderator: There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
Per Oskarsen, President and CEO, Mirko: Okay. Thank you all for listening. And have a great day. Thank you.
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