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Meko AB
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[Audio Gap] fairly good. We have strong cash flow and a lot of activities, in order to improve the profitability. And then, of course, last Friday, we also announced that we're making another acquisition in Poland, which is super interesting.
Okay. Looking at the EBIT and operating results, what are your thoughts?
Yes. But we're still affected by one-off costs and integration costs. But all these is, of course, to be able to improve the profitability going forward. We have -- I would say, especially now the latest activities is in Denmark and Finland, where we're taking some extra costs. But all in all, we're well within our targets, for example, in leverage zone.
Okay. Well within target, we'll look closer at that later on. But the acquisition that we announced last week a little, can you tell us a bit more about this company? And why we're doing this?
Yes. Elit Polska is was or will be, was one of our competitors. We -- many of you have heard me talk about that Poland is market, which needs consolidation because it's very fragmented. There are a lot of half of same small players. We would like to be part of that consolidation, which we now are.
We will have an extra or they had a revenue last year, SEK 1.1 billion, and that will increase our market share from 5% to approximately 8% and actually put us up on #3 in the Polish market, which is, of course, very important for the growth strategy, which we have in Poland.
Then, of course, this also increases our footprint because we will be available for new customers in a lot of new cities where we have been before.
Yes. So we see that there are some synergies that we are aiming to gain here. Can you say anything about that?
We don't disclose those estimations, but of course, there will be some costs in the beginning to do the integration and so on.
And the financial of this -- financials of this company, what can we say? We've seen the figure of the turnover, but margins and so on, what can we say?
The margins in Elit Polska has been unsatisfactory. But combining that with our present operation is what will make this happen, so to say, there is a lot of possibility within synergy, within integration, back-office functions and so on, which we can share instead of -- it's a lot about scale that we get new volumes and by that, also get better profitability.
Okay. So if we summarize this acquisition, the takeaways what does it look like?
It's sort of our growth strategy, definitely. We, as I said, participate in the market consolidation. We can benefit of the higher -- bigger scale. And then it's a very complementary business. This is exactly in our core business. So it fits very well.
Okay. Fits very well. Thank you very much, Pehr. So let's have a closer look at the highlights, the financial highlights and the results. So I say welcome to you, Christer Johansson. Nice to see, you are our new CFO in the company, so especially welcome. So maybe you are new as a CFO here, but not new as a CFO.
I thought I've been in a couple of quarterly reports before. This is the first one here, of course, quite excited to be here. Also been really interesting to get to know this well-run company over the last couple of months.
So great to have you here. So we have a closer look at the financial highlights on the next slide.
Yes. So to start with, we are delivering strong net sales growth in all markets. Equally important, we've been able to sustain this growth without a similar growth in working capital. Obviously, that helps the operating cash flow, which has been quite strong, SEK 1.5 billion over the last 12 months.
As Pehr mentioned earlier, our adjusted EBIT is stable compared to the same quarter last year. I will cover the pluses and minuses in a bit, but a general remark is that Easter falling in Q1 this year took out at least a day, sometimes 2 or 3 days compared to the same period last year.
But we're looking back at EBIT again, Pehr mentioned a lower EBIT. If we look at it significantly lower this quarter than the same quarter last year.
It is. It is. And there are 2 items affecting comparability here. The first one is our business system upgrade. This amounted to SEK 22 million in the quarter, and this product will, of course, keep going for some time. Then the second item affecting comparability relates to an impairment of our shareholding in Omnicar where we are a minority shareholder. And obviously, this one, which amounted to SEK 90 million is not a cash flow impact.
No cash flow impact there. So if we move forward to look at the gross margin and how we are handling this situation with the gross margins, can we take the next slide?
So on the positive side, to start with. Finally, we've come to the point where price adjustments do compensate for the currency headwinds. This has not been the case lately, but now it is. That's good. On the other hand, pulling in the other direction. We've seen a quarter where the harsh winter came with particularly strong sales in certain product categories, batteries being one of them. These were categories with low margins. And even though, of course, the sales are still profitable and we're happy to do them. They're not as profitable as the average product. So this came with a somewhat diluted margin in the quarter.
Okay. So you said that adjusted EBIT is stable, but is it stable all over? Can we have a look at that?
I wish it was, but I thought there are some outliers here. To start with, Sweden, Norway or you could say, our original core markets are performing very well. And that's, of course, pleasing to see. It's also a sign of the activities that we have initiated over the last 6 to 12 months, working well. So that's good.
When it comes to Finland, I think we should go to the business area I walk through. And also in Finland, reported sales is up quite a bit, 8%. This is, of course, good to see. Nevertheless, it's fair, obviously, to admit that operational efficiency here is not where it could or should be. There are 2 points here that I want to make.
The first one is that the poor EBIT in this quarter is reflecting us incurring some costs now to ensure a gradual improvement in the coming quarters. Then the second point I want to make is that we are indeed excited to announce that there's a plan to automate the warehouse in Helsinki, and this will improve efficiency starting in 2025.
Yes. Exactly. So what is the long-term view regarding Finland, what can we say?
Yes. So this will -- it will not happen overnight, of course, but we are confident that this market will reach profitability levels comparable to our other markets.
Okay. So moving on to Denmark, another business area with the red numbers.
So Denmark is quite a competitive market, but we see strong growth also in Denmark. As mentioned earlier, Q1 fell in -- I'm sorry, Easter fell in Q1 this year. And in Denmark, you could see this quite clearly because there was, you could say, 3 days of sales missing compared to the same quarter last year. And one should also say that the same quarter last year was quite strong. So that you can see here.
Now, of course, there will be no Easter in Q2. On the other hand, we're quite busy with doing other stuff in Denmark, and we have in April, announced a reorganization meant to support the long-term profitability.
Exactly, Pehr is going to get into that as well later on. Yes. So moving on to Poland and the Baltics.
Yes, Poland has shown a solid performance, 7% organic growth. And additionally, we have managed to slightly improve the gross margins in Poland, which is great to see. However, like most companies operating in Poland, we are facing some macroeconomic challenges. And for example, we see very high wage increases in certain groups.
Okay. So we touched upon some improvements in Sweden and Norway, especially regarding the initiative to enhance efficiency. So should we have a closer look at the business area, Sweden, Norway.
There's a lot of good things happening in Sweden and Norway. And just to mention a few very healthy growth, 7% up, and this is the result of both successful price increases. And healthy volumes. Furthermore, there is an effect here of the savings initiatives that we have started, and this goes for both Sweden and Norway. So quite glad to see that. And this work, of course, continues. Petra will in fact get back to it later today.
Yes, we will have a look at that. So one area, business areas showing a quite strong performance is the business area, Sørensen og Balchen in Norway with a growth rate of 26% this quarter.
I agree. It's quite impressive, I have to say. So this is partly the result of the good work done by our colleagues in Sørensen og Balchen last year. where they were able to acquire quite a few new customers. And what we're seeing now is the full year effect of this. Very helpful indeed for the results. In addition, Sørensen og Balchen has been shifting their mix towards the B2B segment, which is an attractive segment. And we can see that also this is supporting in the quarter. And you can see here, there's a healthy growth in top line, EBIT is improving a lot. Adjusted EBIT margin also improving quite a bit. So really strong quarter from Sørensen og Balchen.
Yes, really strong. So thank you for that, Christer. We will soon answer the part. Next part where we'll go more into detail, where Petra is going to and Pehr also tell us more about the strategy and our initiatives. But shall we just first summarize the quarter Pehr, would you?
Yes. Happy to do so. As I said in the beginning, it's a strong quarter. We grow in all business areas. Net sales up 9%, a very strong cash flow, and a lot of activities in order to improve the profitability ongoing and then, of course, excited about our new acquisition in Poland.
Yes. Thank you very much, Pehr. So we will now look into the next part of this event. But maybe we should start by looking at the screen, the big screen.
[Presentation]
Okay. We enable mobility today, tomorrow in the future and always obviously. So that is our vision. But is that still valid today and this well turbulence and turmoil?
Yes, I would say, so we have a very solid business model. But of course, we are not completely isolated from what's happened around the world. But the need of service and repairs that remain stable. What we can see in typical starts of downturns is that there is a delay people hesitating to do the service because they don't know if they are still employed for the next months, interest going up and all those things. But that usually, in the last 3 to 6 months because as long as we still use the car, then we need to have the car working, and then we're back in the workshop and doing the service.
Okay. So fairly stable then. So we hosted a Capital Markets Day in March last year. So how would you describe what happens since then?
Well, there is -- I would say, the year's development. We talked a lot about last year about how to increase efficiency, to build on the strategy, we -- how to achieve the financial goals. And we have been working very consistent on that strategy. Of course, as I said, there is turbulent time, so it's a little bit to navigate within. But I think we have performed and delivered very well.
Maybe we can have that slide. Next slide, please. So just to repeat, next slide, please. So we can repeat. Yes. There you are actually again over there. Exactly. So we talked about increasing the lead as we said, into the future of mobility, as you said. So in what way have we done that?
Yes. We have grown in some of the segments which we mentioned last year. Heavy vehicles portal is one of them. Glass is one, but also the increased share of exclusive brands and also some new partnerships with electric car manufacturers.
Okay. So we have also talked about improving profitability, haven't we? And last year, we launched an initiative called building a strong MEKO. So what have we done since then, if you put it shortly in some?
Yes. But the building a strong MEKO and that initiatives. There is -- it's still ongoing to have that said, but we have launched a number of initiatives. It's central warehouses in 3 countries, automated, which will, of course, give us more efficiency. Those -- all 3 of them should be operating from next year '25. Then we have savings programs in Sweden. We have the restructuring -- a business model in Norway, and we're also doing reorganization in the market. So there's a lot of things happening there.
Lot of things happening, high tempo, but are you -- we're going to look close at this -- all this later on. But are you satisfied with the outcome so far? Could we do more?
Never to be 100% sorry. That's not my nature. But I think that according to our ambitions, yes, I would, of course, like things to happen much faster, but you can't simply build a new central warehouses in a couple of months. But in terms of what we are doing, we're doing it good. So yes, fairly satisfied.
Fairly satisfied. Okay. So let's move on to the slide where we can look at our strategy. And if you can guide us through that again, because many of you might know it, but let's repeat our strategy and business model.
Yes. Let's start with our geographical presence. We are now in 8 markets. And we are a market leader in most of the markets now also getting closer to that area in Poland. And I mean what is our core and what we aim to be is to have the best availability for the workshops. And that means a lot of local presence, both in terms of warehouses and products, but also to be with salespeople and keep the relations.
We have very strong brands, which we -- when we acquire, we don't kill it, we'd rather develop our very strong brands, and that also gives us a good confidence in the market. And if we look at the next slide, it...
The business model, yes. And the revenue streams, what can we say a different revenue is seen, but it's mostly from other businesses, it's like business to business.
Yes. It's 90% business. And what's interesting is 60% is direct sales to workshops where approximately half of that goes to a lot of independent workshops, 15,000, 16,000 of them in our markets. The other half is to our affiliated workshops and that 4,300 of them. Those are the very important customers because that's where we also meet the car owner with our concept, so to say. And they also operate under one of our different brands, Mekonomen MECA fixes and so on. Then we have 30%, which is other B2B and here, a lot of that sales actually goes to a workshop also, because that sales to typically local wholesalers, it can be distributors. So very much that 30% also end up in a workshop. But there is also a lot of other categories. It's -- for example, it's Swedish Army, but it's also -- could be Body Shops quite significant part goes to OE dealers, car dealers and also a different kind of authorities. And then we have the 10%, which is retail sales directly to end customer.
Okay, 10% to customers. So to summarize the business model, we used to say that it's proven and stable right?
Yes. We have this timeless need for transportation. And we see and I think has been both with the turbulent time the last year and we have the pandemic. We have during this last 5 years, we really have kind of seen that our business model that is super strong in whatever kind of times we're facing. And there's always a strong underlying demand. And then also back to the electric cars transition, that is, of course, opportunity for us.
But there has been some discussions about EVs lately this year, especially about the repairability and the costs for repairing it, is it even possible to repair and so on. So what would you say? Is it feasible to repair an EV today for battery, for example, as the reasonable cost?
Yes, it is a problem. So I would encourage you everybody who are in Dubai and we check if the battery is repairable because if the battery is not repairable, you are doing damage to the environment because that car might need to be scrapped for 12, 13 years, and that's not good for the environment. Most of the batteries in EVs are repairable, you can shift simple cells and so on, or you can do other things as well.
So -- and this is a technology which is still under development. But in Norway, we have already a couple of workshops that are very good in doing that. So it's important that it's the right kind of technology due to sustainability, but we have the knowledge, of course.
Yes, because, I mean, EVs are not new anymore. There are many EVs that have been out there for some time and they're getting old and we -- there has been a discussion before that, well, this business model is not going to work because we can't serve the traditional cars anymore. But now we have some observations made. So what is your key takeaway when we can see these cars getting older and need a repair?
Yes. We have -- that's also interesting with -- back to our footprint because we have Norway, who is very far ahead in the transition and other markets we can learn and adapt. But what you see in Norway now with approximately 25% of the cars on the street, it's fully electric. And the sales of new cars is around 90%. So -- and some of them start to be a little bit older now. So we have EVs in our workshops every week, I would say, in Norway.
And there is a different, let's say, pattern of how this service repairs are when it comes. Obviously, we don't sell oils and filter in the same way, actually, filter in terms of value, maybe almost as high as before because we have other interior filter, which is super expensive and very high-tech when it comes to oil, that it replaced by either fluids because we need cooling fluids for the batteries and so on. So there is maybe less parts, but very complicated and sophisticated technology. So the service and the repair cost is definitely not lower, especially if you look over a lifetime of a car.
And then there is products which we have an increased demand for. That's typically tires, glass, breaks with mic sound a little bit strange because we don't use the break often because we use the engine to but that means when we don't use the brakes, they rust. Once a month, we use them and then they crash and the need to replace the whole brake system. So yes, it's not so often, but when it happens, it gets very, very expensive.
Can you say anything about the share of our revenue stream from serving and repairing EVs?
Is still very small and still it's now the older car starts to come in the market for this. So it's still small numbers, but it's increasing.
So if one would look again at the reparability question, if it starts to get -- or if it's not that easy anymore. How would that affect our business and the industry, you think?
Yes, it might lead to some consolidation. But again, we are prepared. We have trained more than 6,000 mechanics. We have almost 1,000 workshops that are certified. We have the knowledge, we have the tools. We have the right to repair according to regulations. So we, of course, are prepared for this market as well.
Okay. So talking about the market, let's take a step back and a broad view and have a look at the market potential and the market size. For Europe, this is what we see here is the European aftermarket. So what can we say? Quite significant market size.
Yes, it's a big market. This is a total market, whether -- which is now EUR 220 billion. And it's all -- it's the independent of market and the, let's say, the part that goes through the dealer network and so on. We have a -- here, however, it's important to point out that, that is for the total European market. And when we look into different countries, there is big differences, and there's also a big difference between Eastern Europe and Western Europe, okay.
So this is the total market. But how much is the independent part, can we say anything about that?
Again, that's also very different in the different markets. But very roughly, you can say 50-50, but then there is markets where it's 75% is even independent, and there's a market where it's only 40%. But from a rough figure 50-50 ballpark.
50-50 ballpark. Okay. So what is our strategy to take maximum benefit out of this significant market?
Yes. The strategy is, of course, to follow strategy, which I try to repeat. This is not new. We launched it last year. But a quick reminder. We have the 4 different areas, better operations, that is very much what we have talked about when we talk about increasing profitability and building a strong MEKO. It's more efficient warehouses. It's more efficient organizations, do everything in a more efficient way. Of course, a lot about logistics and so on.
Better workshops is to create the concept for the workshops, for the affiliate workshops to make them a winner on their local markets. And that it's everything from, let's say, training or mechanics and helping them with the right equipment to actually help them with customers, which we do when we have a fleet sales. So we do contracts with larger companies to our workshops, but it can be online booking systems and so on.
Then we have better mobility than we are facing the car owner to create a more, let's say, effortless car life, and that -- for that, we need to have a more advanced workshop concept. It's again, things like online booking, but also price structures and those kind of things. And the last as part is...
Sustainable growth. Exactly. So what does that mean?
Sustainable growth, that is to continue to grow in our core business for a long-lasting company in the future. And I would say the last acquisition in Poland is one example, but it's also investments that makes us grow.
Okay. So talking about sustainability and sustainable growth. We are actually also working, of course, as every other company with sustainability at a high temp, I would say. But can you say a bit more about what we're doing on the high level?
Yes. On a high level, I would say that, first of all, we are sustainability because it's almost -- as long as it's a pretty new car, it's better to keep that one on the road a couple of more years than to produce a new car, even if that new car is electric. So that is what we're doing instead of throwing and producing, we keep things alive and in our case keeps the cars on the road.
But then we have within -- then, of course, we tried to reduce our footprint. One example is in Norway when we do this restructuring of the branches and the logistics that actually has a very good impact on the environmental side also because it's less transports and more efficient transports. We linked our bank loans last year to sustainable targets that also put pressure on us and possibility to get better conditions, of course.
Okay. So these are a few examples. So what have we done -- I think we showed this slide last year as well. But what have we done since then if we look a bit closer on that on the next slide?
Yes. As I said, the bank loans and then we actually had this bronze medal in EcoVadis, which -- where we entered top 35% and then it's an intensified work at all levels.
So EcoVadis is kind of an international institute that ranks companies and the sustainability work here. Okay. So -- and we have -- these are a few examples, but we are also doing more. Many companies talk about being a better employer in that sense, what can we say about our efforts here?
Yes, but that's super important, and people are maybe the biggest topic for me when we talk about sustainability. And I have a strong belief that diversity is not an option, is something, which we need to work with. And basically, what it means is that we should be an attractive employer for everybody who has the competence and the knowledge. We will be successful if we have the right people. To have the right people, we can't exclude any part of whatever gender or nationality or whatever. So we need to be -- and this is not only we. This is something, which I think our industry needs to work with also. It is -- I mean, it is car parts and workshops doesn't attract women unfortunately that much. So we need to kind of reverse or change that attitude.
You used to say sometimes that you could hire 500 people on Monday if there were 500 people to hire.
In Sweden, if somebody wants to work as a mechanic, I have 500, which I can start writing contract today.
Okay. So if you know anyone, please...
600.
600. Great. Okay. So thank you, Pehr for that. It seems like we are on the right track here. So let me ask the same questions to you, Petra Bendelin, the Chief Operating Officer at MEKO. Welcome.
Thank you very much.
So you are the person that is responsible for our operations, obviously, on a high level, but also regarding the initiative building a stronger MEKO, would you say that we are on the right track with this initiative? Or have we seen anything that worries you or any bumps in the road?
No, I would say we are on the right track and haven't seen any bumps in the road just yet. If they occur, we're ready to handle that.
Okay. Sounds good. So if we take a step back also in this aspect and have a look at the initiative building at stronger MEKO, just to repeat, what this is about? So let's have a look, yes.
Yes. This initiative is first and foremost about accelerating our execution on our strategic focus area, better operation, which will lead to increased profitability. We have, in general, been successful in growing net sales, reducing debt and to some extent, increase operating results, but we want to increase margins. So this is what this initiative is about.
And as you can see, we have 3 different areas. It's about cost reduction and enhancing efficiency. So this is about streamlining operations, optimizing our network. Then we have the supplier optimization that goes for procurement, this is about harmonized the assortment to be able to consolidate the supplier base. And this initiative also includes our work with exclusive brands we would like to increase the proportion.
And then we have the new business system that we have started. This is a program that will run for a couple of years, but it will help us to gain more synergies from a group perspective, also to connect our logistics network to be able to broaden the assortment to all markets, which will lead to increased revenue and decreased costs.
Okay. Great. So these 3 parts of the initiative is going to lead to an EBIT improvement?
Yes. Looking at the cost reduction efficiency and the supplier optimization, we will get it and everything else the like, we will get at least 15% by 2025.
Okay. So this was announced, as we said 6 months ago, we have heard Pehr talk about a high tempo. And so we shall have a closer look at what we have done actually more in detail. So would you please guide through some of our activities?
Yes. We are conducting a lot of activities, but I will highlight 6 of them during this presentation. And let's start in Norway.
In Norway, we are investing in a fully automated warehouse. Previously, we have had separate premises with manual handling. So now we're consolidated into a new warehouse, this gives us many benefits. First, a significant improvement in efficiency, more orders handled in a shorter time, increasing the service level for our customers.
And we will also see significantly reduced costs by doing this contribute into sustainable margin in Norway.
So this will also mean a reduction in number of employees?
Yes, it will. And that's necessary to future-proof our operations in Norway. And another initiative in Norway is the consolidation of MECA and Mekonomen branches in Norway. Previously, we have had parallel operations Norway, and now we're merging it into one. So we are moving from 51 branches to 32. But what's interesting is that we actually increased the service level to our customers because previously, MECA had access to 24 branches. They now have 32 and Mekonomen had 27, and they will, of course, also have 32. And of course, our new central warehouse will be servicing these branches.
So about Mekonomen in Norway, we have closed Mekonomen stores.
Yes. We have closed the stores, keeping the branches. And this is -- it's -- first, it's been a very small part of our business in Norway, and we have refined it by consolidated into our retail chain BilXtra, that we have in Norway. So we're truly focused on the business-to-business market from the Mekonomen perspective in Norway. But let me just clarify that we have a different situation in Sweden.
So we will not close the Mekonomen stores in Sweden because I think that would be kind of a story.
Yes. We will only close the 1 that are unprofitable or in places where we can merge maybe 2 stores together.
Okay. Perfect. So let's move from Norway to Finland from West to the East. So we have also decided on a new modernized warehouse in Finland.
Yes. So let's move to Finland. This was announced in April. As a background, we acquired Koivunen 2 years ago. Koivunen is the biggest wholesaler in Finland with a strong workshop brand fixes. So 2 years ago, and it's time to modernize the operation, the central warehouse in Finland.
And this will, just as in Norway, of course, improve the service level significantly. We will reach out to our customer in a faster pace, and these new facilities will be up running during 2025.
Okay. And, I guess, I assume the efficiency gains are also something that we're focused on. Can you say anything about that in terms of employees, for example?
Well, the automation solution per such requires less employees since it's an automated business running.
Yes. And we're talking about a lot of automation technology here today. Many of you might know the auto store solution and other kinds of solution. But can you talk a bit more about this? What does it mean, this technology?
Well, it's a fully automated, well-proven technology from auto store that we're using very efficient to run our operation and also used in companies like in Siemens, PUMA Boost, for example.
Okay. So let's have a look at Sweden as well. We've touched upon that several times already, but what have we done here? And how are things going?
Yes. Here, we are focused mainly on optimizing our cost structure. We are reducing the number of central function, looking at the overhead costs and streamlining the operation. We have the possibility to be more efficient in Sweden. And this, as we have announced already, will give us SEK 50 million with full effect in 2024.
Okay. You say we have the opportunity to be more efficient. Is there a potential for more than this figure?
Yes. I'm optimistic and we're leaving no stone unturned in the Swedish operation. It's too early to say what else there should be. But I'm feeling positive, and we will not settle for less than improved profitability in Sweden.
So we saw the slide on Norway, where we merged and consolidated the different branches. Can we do the same in Sweden with MECA/Mekonomen you think?
Well, no decisions has been made yet, but we are constantly optimizing and have done historically also where we can close merge or sometimes we're also open to have a better optimized network. So that's ongoing work.
Great. Okay. So let's move on to Denmark.
Yes. Also, in Denmark, we are the market leader by far. Here, we have the wholesale operation [ FTSE ] and well-known workshops brand as AutoMester, Car People, Hella Service Partner. This market is highly competitive, and we are doing 2 main things here in Denmark.
First, we are streamlining the organization. We have divided the sales organization and the logistics organization to be able to work more focused with customers and optimize the logistics. And we will see efficiency, and we also will see reduced costs during this.
So we are building a new warehouse as well in Odense in Denmark with a new headquarters for [ FTSE ] as well. We'll be fully operational next year. How would this affect our operations next year?
I would say, together with the organizational change that we're doing and this automated warehouse, we will have a very strong position to fight on the Danish markets. We will see efficiency gains and also better financial performance.
Okay. You said we were going to go through 6 initiatives. So there's 1 left. So warehouse or...
You might think so. No, I would say this is more about what to put in the warehouse.
Okay.
So at our Capital Markets Day last year, we said we wanted to increase the proportion of exclusive brand and also consolidate the number of brands. And this is exactly what we have been doing. So looking at this picture showing the net sales of exclusive brands, we see an increase in net sales. There is a bit between the quarters as seen in Q4, but I think the red pile here in Q1 shows that we have a solid trend in this one.
So why is this important? Why we always talk about exclusive brands?
Well, for several reasons. It gives us better control over quality, assortment, and we can gain synergies within purchasing marketing, but it also gives us control of the gross margin.
So what is the gross margin? Can you give us a ballpark figure, maybe?
No. but it's good enough to wanting to increase our proportion of the exclusive brands.
Okay. I see. So the consolidation part with fewer exclusive brands. What about that?
Yes. We are focusing on one premium brand and one price fighter brand that we could use as defense. And we have ProMeister already well established as a premium brand in the market, which we're expanding to other markets as well. And in parallel, we have launched Atomac as the price fighter to offer to customers that focus only on price and maybe not the highest quality, but it will not be sort of presented as a first choice. It's more like a defense play if we need it.
Okay. Defense mechanism. Okay. So we're not only working with exclusive brand and other parties also as you touched upon procurement. So we're aiming at more attractive purchasing prices. So how are things going?
It's going good, but we can do even more. MEKO is a big purchaser with a direct spend of approximately SEK 9.5 billion. So of course, that is potential. We are looking at harmonizing the assortments even more between our different markets. We haven't done that a lot historically. And of course, when we harmonize the assortment, we can also consolidate the supplier base going out to do global tenders and such.
And I would say, in addition, we also have local potential. In some markets, we might be able to move local suppliers to the global ones, giving us bigger volumes there to negotiate with, and we can, of course, also renegotiate the local suppliers that we have got. And we are also now looking at our indirect spend, which sort of untapped potential for us looking from a group perspective.
Like IT, transportation and so on. Okay. So how far have we come?
We are running at full speed, I would say, adding resources to this. But with that said, it's not done overnight. So this will be ongoing work, but it's an important prioritization for us.
Okay. Great. Thank you very much for guiding us through these initiatives, Petra. So we know a bit more about what we're doing. Thank you. So let's have a closer look at the financial performance and I welcome you, Christer. How is these initiatives -- how are -- I mean our affecting financials and are they aligned with our financial targets?
They are indeed. So let's start by doing a quick recap of our financial targets, and they were launched a year ago in our Capital Markets Day. To start with, we target at least 5% sales growth, and this could be from a combination of organic growth or smaller acquisitions. So bigger acquisitions like the one Pehr spoke about earlier, is not -- it's not really part of the 5, it would be on top of the 5.
With an eye on margins, we also target adjusted EBIT growth of at least 10% per year. Separately, we've communicated that our net debt to EBITDA should be in the range of 2 to 3, and we've also communicated that our dividend payout should be 50%. So those are the financial targets unchanged.
Okay. So how are we doing?
How are we doing? I would say we're doing good on 3, and we're working on the fourth one. So let's do one-by-one review.
Yes.
Starting with dividends, then our AGM decided, I guess, an hour ago, Not even an hour ago to have a dividend for 2023 amounting to SEK 3.70, which happens to be exactly 50% of last year's profit. So that's no surprise, of course. But as expected. So let's move on to leverage. On leverage at the time of our Capital Markets Day, if we go to the next page.
Can we have the next slide? Yes.
At the time of our Capital Markets Day over here. On leverage, we were actually out of bounds. So we were a bit north of 3, and this was the result of the Koivunen acquisition back in 2022. Since then, cash flow has been healthy, and we've now worked our way back into this range, currently sitting at 2.7.
But we are also acquiring Elit Polska, we talked many minutes about Elit Polska. So how all this affected leverage?
We are indeed. Yes, it doesn't affect much at all actually. So the purchase price and the initial cash flow is small in relation to the group as a whole. So there is not a significant impact from this.
Okay. So 2 down, 2 to go, can we have the next slide, please, to look at the next sales growth?
Yes. That's actually, let's go straight for the next slide. So on sales, using 2022 as our baseline with 5% growth per year, we stated at that time that we should get to at least SEK 18 billion, SEK 19 billion over by 2027. While as things have played out, we're a little bit ahead of that plan, which is great. And of course, there's been a little bit of inflation here driving the pricing that helps, but also without this, we would be well on track when it comes to sales.
But looking at 2024, it's 17.3, is that a target or?
It's not a new target being introduced here. So this is just Q1 times 4, actually for illustration. And we've not said what we expect for the full year. But what I can say is that we're working quite intensively with efforts to keep this healthy revenue growth. One of them being the acquisition in Poland, of course, which alone should bring SEK 1 billion on a full year basis. Better further to that, we're also working on initiatives within the existing business.
Can you give some examples, please?
Yes. So one example that we've used that we commented upon a few times, is the fleet business. And in this segment, we're seeing quite robust growth, 17%, and we're seeing this growth across the markets where we operate in. So this is really quite strong. And our aim here is to continue to grow ahead of the market, which we estimate to grow at around 6%.
So geographically as well, new markets?
We are indeed -- we are hoping to launch in Finland within this year and that -- taking a step back, you can see that the general markets here, so the share of cars within car fleets is growing. We think it's going to go from around 9% now to 15% in 2030. So quite an attractive market to go after.
So what do we think that we can outgrow the market?
Yes. So I would say that the fleet operators, they're a bit like us. So they're mindful of cost and efficiency. And in fact, we can help them to serve any car, any place, all the time. So we should be a really good partner for them.
Sounds like that definitely. So we're off to a good start on sales and have more things coming, obviously, but looking at the target for adjusted EBIT growth, I mean it's now seek if we didn't reach that last year. So what are your thoughts?
We didn't. And maybe if we go to the next slide. So I said earlier on today that the adjusted EBIT is stable, which is true, but it's not good enough. Clearly, with 10% growth per annum starting from 2022, we would expect us to get to 1.5, 1.6. So it may look as if we're off to a slow start then. But in fact, we're not. And as Petra has said, we have initiated quite a few actions which have great potential. And you've heard of some of them. It's the warehouse automation. It's the consolidation driving cost efficiency, also within sourcing.
And as if all the details that Petra gave you is not enough, I think it's also clear that these actions are happening because you can see the cost of them. Up to this point, we have incurred costs of around SEK 150 million, including Q1. And if we look ahead now for the rest of '24 and '25, there is more cost here. So we estimate it to be between EUR 100 million and EUR 150 million for the rest of '24 and another EUR 100 million in 2025. But of course, these are investments that we are happy to make because that's what's going to get us here.
So if we have a look at some kind of a projection going forward, what would that look like?
Yes. So of course, growing our business as is will generate some profit growth, but that will not get us to 1.6. We've chosen to illustrate it here with this part being on an illustrative basis, the growth and profits that we would generate with a flat adjusted EBIT margin. Of course, that's not what we're aiming for and what will get us to 1.6 are the initiatives that we are now driving. It's the warehouse optimization. It's the supplier optimization, is the cost reduction from efficiency efforts and make no mistakes. These actions are very much in flight, and that's what's going to get us to the 1.6 by 2027, which was the initial target and which still stands.
Still stands. Okay. Thank you, Christer. So we're almost done with the presentation. And we will soon open up for questions. But Pehr shall we summarize what we've talked about.
Yes.
So moving on to the next slide.
But yes, to summarize, we have a very solid business model and market leader in Northern Europe. We have talked more today about the many activities we are in flight to improve profitability, doing a lot of investments in high-tech warehouses in several of the markets and also optimize and work with efficiency across all the group. So -- and by that, I would say that we are good on track to reach our financial goals.
Okay. Great. Thank you. So we will open up the floor for questions now. [Operator Instructions] So I think Mats over there.
Mats Liss, Kepler Cheuvreux. A couple of questions. First, talking about this acquisition in Poland. And I guess, you make it from the main shareholder, and you can always say that it's a bit sensitive, then again, it sort of makes -- seems to make sense. And you -- my question is are there more of these kind of acquisitions to be made? Or was this sort of a one-off opportunity?
Long term, I think we -- in Poland and maybe in the Baltics, we -- there is possibilities to grow by acquisitions. We don't have anything on the table now. It's what I have answered generally when it comes to M&A that we do it on the right target pops up. The -- let's say, the discussion with LKQ and Elit Polska, that, that is -- I mean, we saw already a couple of years that these 2 companies would fit quite good together. And there is a lot of synergies back office and warehouses and those kind of things. So it was -- I would say, that's a win-win for both the companies to do that. But let's see. There is still some interesting companies in Poland and in the Baltics, but it's nothing which we are looking at, at the moment. We can keep the relations.
Nobody is out for sale, but let's see.
We also -- this is also a question about our financial targets because we say that we want to be between 2 and 3. And I personally would like to be closer to the 2 than the 3 to be able to do a little bit bigger acquisition when the possibility pops up.
Okay. And then well, looking at all the measures you are implementing are the 6 steps, would you say that you are ahead or sort of more in line with the plan so far?
Petra, may...
Yes, I would say that's -- we haven't presented the full plan, so it's hard to say that we're ahead. But we are moving at a quite fast pace. And the initiatives, they are gaining effects during 2024, 2025 and onwards. So comfortable that we're moving in the right pace.
One could say that there is -- I mean, the short-term effects kind for what to example, we already see in Sweden and Norway now already in Q1. That is -- then we can kind of confirm that is on plan. A little bit more difficult when it comes to the warehouse projects. They're still on plan, but things can happen within the next 12 months, but so far, so good.
And these investments, I guess, I mean, you have the gearing target and you try to be within the targets, but these investments are sort of -- you are able to carry them with the cash flow that you generate in the operations?
Yes, maybe is, of course, it's not our core business to actually own the properties, and that's not what we're doing here either. So in that sense, there are other partners building for us and then we will operate, of course, the warehouse.
Yes. And finally, does, I mean, I look at the cash flow, it looked quite nice. And is there more to be done in the working capital area? Or is it sort of as good as it gets?
I would say the new warehouses, I mean, none of them are operational yet. So there's no benefits from that in here. This is other stuff that benefit this upfront or in the future.
And also looking at the sort of more long-term activities that we got ongoing with the ERP implementation. Of course, when we can connect the logistics network and we can have tail management only in 1 place instead of 8 that will, of course, have some effect as well.
But don't -- again, availability is key. So sometimes, for example, in Norway, when we reduced the number of branches or number of distribution hubs. That doesn't -- it gives maybe a little bit lower inventory, but not much because we want to use that to have a broader availability in each branch instead. So we will never kind of lower the inventory just to save working capital because that is one of the big muscles we do have.
More questions, please.
This new even lower price brand, Atomic, was it, I mean, is that mainly directed towards the Polish market? Or is it sort of for all markets? And sort of is it directing the do-it-yourself customers? Or what sort of the purpose?
We will use it where we needed to use it, I would say. It will not be an option at first. But we do have customers also in Sweden and Norway that are only looking at price. And they are today purchasing from our competitors. And if we can move them to us, that is, of course, better. So it's more used as a defense than that we marketing it as the first choice.
So please state your name first.
Stefan Stjernholm, Nordea. A question on the gross margin. In Q1, you said that you -- price increases more than offset the higher sourcing price -- sourcing costs. How do you view the future? Do you expected it to be able to keep the price level? Or do you see increased competition?
It's -- the competition will not decrease for sure, that's haven't happened in the last 30 years. But the uncertainty here is currency, I would say, because on the markets where we don't have this currency problem, we managed to keep the gross margin when we compare to the purchasing prices. Then there's always competition, of course, but that, in long term, we should be able to keep that also.
But currency, now we are back to a weak Swedish krone again. But I would say that this level, which we are at the moment, where we ended Q1, we are fairly priced on that level. But another 10%, 15% even weaker krona, that challenges again.
And there are quite a few investments coming. Can you just update us on the CapEx for the coming quarters, coming years.
Christer?
Yes. So maybe I can -- just to reiterate one of the parts we had here. So as you've seen, we've incurred quite a bit of cost to drive these products ahead. I think accounted to SEK 150 million up to and including Q1. And if we look into Q2 to Q4, there's another SEK 100 million to SEK 150 million worth of restructuring and investments coming in that period. And then looking ahead into 2025, there's another SEK 100 million. So that's the ballpark.
Any more questions? I have one here also about Poland. So LKQ wants to leave Poland while you want to enter this market? Why?
I wouldn't read that they are leaving because they are a large shareholder of MEKO. So it's more like putting 2 things together where it fits better. And as I said, this is a win-win for both companies because of all the synergies that we can create.
So if we elaborate a bit on that, what can we do that LKQ Corporation couldn't do?
It's a little bit scale that we -- I mean all the central functions and warehousing, we can scale that for bigger volumes. Could be other ways of working, but I would say scale is the simple answer.
Scale is the simple answer. Okay. Any more questions from audience in this room?
Andreas Lundberg, SEB. You showed a picture of 60% of your business goes directly to workshops, basically of which 50% goes to completely independent workshops. How has that figure developed in the last 10 years?
We are increasing the sales to affiliated workshop. And so, but we are also increasing to the others. But proportionally, we grow more in the affiliated area. So those fewer workshops, they get bigger, and they get -- they have also better market shares. And that is due to the fact that there is -- I mean, the demand from the car owners is increasing. So the -- and it's not only our affiliate, affiliated workshops in general, they are taking market shares. They are taking a little bit market shares from the dealer network, but they take a lot of market share for the very small moms and pops, small workshops who have difficult to see it in to invest. They don't -- they can't leave the workshop to go on training. And so they kind of slowly die out.
And also looking at those figures, it's quite interesting to see half of the revenue goes to around 16,000 workshop and half goes to 4,300. So of course, from our perspective, it's a lot more efficient to focus on the affiliated workshops.
And how do you make sure that you get that business for an independent shop that closes down?
But it's very much is about the mechanics because it's the mechanic who creates the purchase needs, so to say. So what is important, and this is super local, but it's important when a small workshop stopped to exist, that one mechanic, it's important that he starts to work in one of our affiliated because they need mechanics. And as I said before, 500, we can employ to on Monday. So it's just to make sure that our affiliated workshops are good in attracting the mechanics, and then we will have the capacity need sales for us.
Then I have a general question on Denmark. You acquired that business 4 or 5 years ago at decent profitability. What has happened in Denmark over the last 5, 6 years?
If we go back, it actually -- we -- it was a little bit better profitability than it is now. But then we managed to increase that let's say, the first year, it was a little bit dress bright when they sold it as always, but now we have had a little bit lower profitability last year, but we already now see signs that we are recovering and we'll be back to the top level where we were. And it is -- the reason is competition. We have 2 new players, both showcasing on low price. We have a Polish distributor, not our company, so it's also selling lower prices which means that we need to be more efficient. That's why we do this.
First of all, investment of a new automated warehouse, but also now the reorganization is all activities to get back to profitability. But we are by far the market leader. We are -- almost 3x bigger than #2. So we were stable in that market position.
Can you recover the profitability without help from external factors such as competition for instance?
Yes. But it's -- again, it's about efficiency all the time and to be able to work better and smarter. And that's what we can do. And then, of course, there is a lot of back to what we're working with exclusive brands and supplier. They should, of course, help us, but it's also about pricing -- smart pricing. I'm not saying that we should be expensive, but we should be smart pricing. So there is activities to be done.
And lastly, the SEK 200 million plus expected costs for the coming programs. Can you specify them a little bit more?
Maybe I can start and then I can add in. So the biggest part is the investment that we're now undertaking into the ERP program. This was running at SEK 22 million in Q1. And we will continue to grow probably even at a little bit higher pace, maybe SEK 30 million per quarter this year. It's going to be a program that's going to run for 2 years minimum. But of course, these are very important investments to do, because as Petra said earlier, we want to compare the offering across markets, it doesn't really help a lot if you have 4 or 5 different finance systems. We're aiming to go to one, and we've started that journey.
So this is the biggest part of it. Then of course, as you will have seen, for example, when we announced our efforts in Norway in Q4, there was a restructuring charge associated with getting out of some of the rental agreements with the branches that were shutting down. There's also a bit of redundancy costs associated with the soft leaving. So those are the kind of costs that you would expect to see going forward as well.
Okay. Great. So another question from the digital audience. So question in general terms here about our relationship to LKQ. How does it work when your largest shareholder LKQ is also a competitor? What pros and cons does this entail? Pehr, that's maybe for you to answer.
Yes. I would say now with the deal in Poland, we're not competitors in a specific market like that. We have very good collaboration with LKQ. The most important part is when it comes to purchasing because then we put our volumes together and trying to get the best conditions. It's not only prices, it's on the other terms like payment terms and so on. We have also different projects groups that are working, for example, with digitization. We have -- we are working together with a battery repair for the future. So there is a good tight collection. And then, of course, we have representatives in our Board who can also, let's say, help us in the strategic planning and so on.
Okay. Okay. So we have another...
May I just also to add that we must also always look at MEKO's best? MEKO never put us in a position where we favor LKQ if it's not in favor for us. So that's sort of important to state.
Okay. And that was just -- when we did this the last the pending acquisition now, then we work with an independent Board who do the analysis and take the decision. So the LKQ represented are not there. And then we also add an outside fairness opinion just to make sure that we work for all shareholders' interest, it's super important.
Okay. So question about sustainability, I saw here. So it appears that this is -- or the requirements will not be included in the reporting for next year for '24 figures, I should say. So what does this mean for sustainability efforts going forward?
Well, we -- we will know about the CSRD reporting in June, if it will be postponed 1 year for Sweden. But we are still working at full pace. And if they are postponing it the year, we see that we get sort of a year to try and test so we can be even sharper and even better when it's time for the report in 2026.
Okay. So question with cooperation with ZEEKR. So can you tell more about the status of this work? And what do you expect in terms of new partnerships going forward?
But we have constantly ongoing dialogues with car manufacturers. It should be different these partnerships. But what's interesting with ZEEKR is that we -- first of all, it's only Sweden still, but the idea is that we should expand this to the Nordic countries. But what we do this time, which we haven't done before, is that we actually are a little bit involved in selling the cars in -- by that we have this roadshow around the country where they stay at our branches or workshops show in the car, and we will help with test driving and so on. So that's kind of a new part in those kind of partnerships.
And the strategy here is to work with many newcomers or existing ones. So we will not give exclusivity to one, we have a broad portfolio. Some of them will be really big, some of them won't make it.
Okay. Any more questions? Yes, please.
Marcus Villante [indiscernible]. Thinking a bit about the difficult environments, and we've been through sort of -- is it -- I mean, on one hand, people have delayed everything that can delay with high interest rates and lower available income and so on. Then there are also this sort of sale of used car, it decreased a lot in '22, it started increasing in '23, again, if I look at Sweden and Finland, and some say that this has accelerated in April sale of used cars. So is it possible to somehow estimate how sale of used cars affect your sort of market, how big part of your sales is for...
But it is -- the answer to the question is no. But it's one of the components, I would say, what drives or not drives our market. But it's sales of new cars triggers sales of used car and used car also trigger very often service and repair because you either as a new buyer, there's something you need to fix or you want to fix it before you sell it or the company who is selling. And we have some very big customers who is the large in used cars. As a workshop, they are very good customers. So it triggers some.
But then you have all the other components, miles-driven because, yes, because you buy a used car, then you should use it because that triggers the next service. So miles driven super important and then, of course, the age of the car. So with the low new car sales that we have had, that means in all the car part, that means maybe more possibilities for us. But putting all those components together, it becomes a little bit on and off. And generally, it's -- which seem to have very stable, let's say, development regardless of how these are moving.
One easy question related to that because you've seen a lot of companies complaining about the calendar effect and some consulting companies that reported yesterday and the day before that. Some say that you had 5 less working days, some say you have 48 hours less and you say 3 less working days. I mean wasn't it extremely weak.
Maybe I can comment. So, of course, the different markets differ a bit here, depending on how many working days they have and whatnot in our quarterly report, there is actually somewhere where you can see sort of market by market, Q1 this year compared to Q1 last year. On average, it was 2 days less, Denmark it was 3 and in some markets, it was 1. So agree, we're also a little bit tired about talking about Easter.
But to add on that because there is also the problem with Easter is that we have -- it creates half days. I mean, in Norway, it's holiday, I think, from Wednesday, but already Monday or last the Friday before the Norwegians are up in the month. So it creates maybe more effect than just looking at working days also.
But at least there's only 1 Easter per year.
Yes. Sometimes, we have 5 less days and those in the servicing cars work 3 days.
Yes. Maybe the consultants are for Norway.
Could be.
Okay. Any more questions? Otherwise, I think we are done for today. So do you have any concluding remarks, Pehr?
We just did it before, but again, as I see it, we're working in a super interesting industry with a very large industry, a lot of potential still to get. It's a growing industry. We are very future safe because we are on the right track when they come to strategy, transition to EVs or not. One could debate if it will be going faster or not. We are still there, and we see it as potential. So from my side, the future looks bright.
Pehr and Christer, thank you very much for the last words. So thank you very much for attending this event. Thank you, and see you next time. Goodbye.