Kamux Oyj

OMXH:KAMUX

Earnings Call Transcript

[Juha Kalliokoski, executive]

Hello. Good morning from Helsinki and welcome to Kamux quarterly result presentation. My name is Juha Kalliokoski. I'm CEO and Founder of Kamux.

[Marko Lehtonen, executive]

Good morning. My name is Marko Lehtonen. I'm Kamux CFO.

[Juha Kalliokoski, executive]

There you can see agenda for today's presentation. Firstly, Q1 in brief; secondly, financial development; thirdly, strategic outlook and financial targets and then we summarize those. Our vision is to be #1 used car retailer in Europe and as we see, our vision is very realistic. We are already the third largest seller of used cars in Europe. The table includes European operators that focus on sales of used cars. Our revenue increased 13.1% to EUR 237.3 million and last year it was about EUR 210 million. Our gross profit increased by 4.6% to EUR 24.3 million. Adjusted operating profit was at previous year level and was EUR 5.7 million. Like-for-like revenue increased nicely, it was plus 8.6%. Our international operations strengthened. Total revenue in Sweden grew by 21.3% to EUR 80.4 million and in Germany by 7.3 million -- 7.3% to EUR 22.9 million. And Marko tell later more about the segments reportation and external sales of those countries.

The war in Ukraine has had a significant impact on demand in all countries. In Sweden, gross margin development was good, it increased 26.6% and in Germany 89% in Q1. The market for used cars contracted significantly in Finland and in Sweden. In Finland, nearly 10% and in Sweden, about minus 15%. The market contracted also in Germany, but less about 7%. January and February were still relatively normal, but the war in Ukraine that began at the end of February had a significant impact on demand. Consumers are concerned about inflation in general and oil prices in particular. Also the public discussion regarding higher interest rates is also worrying. As we have said since Kamux was listed, it is good that there is specialization in the market. Kamux has shown the way and been the front runner as a specialist in sales of used cars.

It's exceptional that such a large market has been so fragmented and it's both natural and expected that we are starting to see competitor focusing on the same market. Strong revenue growth despite the declining number of sold cars. Average prices of sold cars have risen. The share of EVs and rechargeable hybrid cars has increased by approximately 40% and the average prices are higher. Operating profit was at the previous year level. The higher average margin of cars sold was not sufficient to cover the negative impact of the decline in the numbers of cars sold. Investments in line with our growth strategy continued and burned the operating profit. I'm not satisfied the number of cars sold decreased in Finland. In Sweden and in Germany, the number of cars sold increased. The number of EVs and hybrid cars sold increased by almost 40%.

Sales of integrated services progressed well, sales increased by 26.6%. We can be satisfied with the sales of integrated services. In Finland, the renewed Kamux Plus service in particular was sold well, penetration 27% and previous year Q1 20%. In Germany, sales of financial services were clearly higher than in Q1 '21. Last year it was 20% and now penetration was 27%. Sales has already begun at the Malmo Megastore. The official opening is this weekend on May 13 to 15. The stores in Nykoping and Kalmar will open in September '22. The Petikko store in Vantaa will move to larger premises during May. The Pori store moves to larger premises in April. The Oulu store has opened at the end of February.

And then Marko tell about the financial development.

[Marko Lehtonen, executive]

Thanks, Juha. Firstly, I think it's useful to describe the situation and environment we were having and of course we grew internationally in a difficult environment. So as Juha was telling, Swedish and German markets declined in quarter 1 and of course the Ukraine war and the fuel prices were in the center point of the consumer focus. However, our gross margin improved in Sweden and Germany and the group's gross margin per car was EUR 1,554, an increase of 8.9% compared to the previous year. That of course we can be happy with the trend. When we think about the funding, the situation still is that the cash is relatively expensive and we have organized our funding so that we are not keeping an ample amount of cash at hand. But instead, we have organized our financing through different limits and longer-term financing arrangements.

And we have also now strengthened our funding in this first quarter so we issued a EUR 50 million commercial paper and we finalized the Oulu project and after finalization, we raised 15-year long-term loan for this property. Return on equity was 19.5% and it was down from the previous year. And equity ratio was 46.4% and slightly improved from the previous year. Earnings per share was EUR 0.11, an increase of 21.6% from the previous year. And I want to underline that our strong balance sheet is the backbone of the growth strategy. Then if we think about the key figures, I will not repeat all of them as Juha was already calling them through, but I will pick a few. So our gross margin EUR 24.3 million was 10 -- relatively 10.2%. So we can see that the gross margin was impacted by higher prices although the margin per car in euros was growing.

Integrated services developed well and grew faster than the revenue and the penetration of financial services increased everywhere. And when we see the revenue from integrated services was 11.8% and 5% from the revenue. The EBIT level operating profit was 5.7% (sic) [ EUR 5.7 million ] being on the last year level and of course our green investments were growth were weighing on operating profit. We were also raising the inventory level ahead of the summer season and that had an impact of the inventory turnover, which was 56.7 days being 54.3 days the previous year. If we then go a bit deeper to the markets and start with the Finnish segment. So the revenue was increasing 4.4% compared to the previous year being EUR 153 million and of course our pieces sold were decreasing by 9.6%, but the higher average prices boosted the sales and there of course the centerpiece is the car mix what we had.

And of course now especially after war in Ukraine started, the demand was peaking for the plug-in hybrids and electric vehicles, roughly 40% peak there. So that of course had an impact as well. Gross margin decreased to EUR 17.8 million being 11.6% and the decrease was coming purely for the margin from the cars so that was decreasing. And in this situation, our inventory mix was not optimal so meaning we didn't have exactly so much plug-in cars and hybrids -- plug-in hybrids and electric vehicles, which were most demanded by customers. Of course our purchasing operations are constantly on the pulse looking to buy cars that meet the demand. But here of course the change was very sudden due to the situation in Ukraine. Operating profit decreased by 7.4% compared to the previous year and was EUR 7.7 million or being 5% from the revenue. And revenue from the integrated services increased to EUR 9.9 million being 6.5% of the revenue.

And revenue from the integrated services developed well, particularly the penetration of renewed Kamux Plus service and financial services also grow strongly. Revenue increased as a result of higher average car prices and successful sales of integrated services. Then if we go to the Sweden. So we had a very strong revenue growth in first quarter in Sweden. The total revenue increased by 21.3% being EUR 80.4 million and it is good to remember that the total revenue is also including the deliveries to other Kamux companies. And at the same time, the external revenue growth was 30.7%. Gross margin increased to EUR 4.8 million or being 6% of the revenue. And of course gross profit and also on absolute terms and relative terms were improving from the previous year. So we can be satisfied with that trend. Operating profit increased compared to the previous year and was EUR 0.2 million or 0.3% of the total revenue.

Revenue from the integrated services increased to the EUR 1.4 million or 2.3% of the external revenue. And with the integrated services, Kamux Plus and also financing developed favorably. Revenue growth was driven by higher average prices for the sold cars, opening of new showrooms and sales growth of like-for-like showrooms. Then if we move to the Germany. So we had a good growth of gross profit and revenue in the first quarter. Corona pandemic didn't strongly impact per se the operations. We had still the 2G operation model in Germany in the first quarter meaning that the customers -- for the customers either vaccination or recovery certificate was required, but that didn't have a major impact to the business. But what was having an impact was that the corona infections or absence of leave were of course high in this first quarter. In Germany, the total revenue increased 7.3% compared to the previous year and was EUR 22.9 million.

And as I was explaining, so this total turnover includes also the deliveries to other Kamux companies. So the external turnover grew 40.3%. Gross margin increased to EUR 1.6 million or being 7.1% of the revenue and the operating loss decreased compared to the previous year and was minus EUR 0.5 million. Gross profit and operating profit improved both in absolute and relative terms and of course about this trend, we can be satisfied. Revenue from the integrated services increased to EUR 0.5 million or 2.4% of the external revenue. And of course we saw in the first quarter a sharp recovery both in penetration and turnover of integrated services. And as I was explaining in the last year that we in Germany due to the corona pandemic, the demand for the financial services was declining and they were staying relatively long time low and started slowly to recover in the last quarter of the last months -- last year. But now the recovery was very strong from 20% to 27%.

In Germany, revenue growth was driven by higher average prices of sold cars, opening of new showrooms and sales growth of like-for-like showrooms. In January, we also received a decision regarding the purchase case we had in Germany and we will continue our efforts to recover our loss or collect the debt there. But we have not booked anything into our books due to the uncertainty of this case. Then if we go to the balance sheet side. Still in the first quarter the purchasing market remained tight due to the long delivery times for the new cars and especially availability of plug-in hybrids and electric vehicles was particularly tight. And of course competition about those vehicles in Europe is currently high. So the net working capital continued to be affected by the exceptionally high car tax liability in Finland, which was related to the system reforms of the Finnish customs, which happened in 1st of January '21 and that has been driving the net working capital lower last year.

But that situation has now stabilized and that is also driving why in the first quarter the net working capital was a bit higher compared to the inventory growth. Net cash flow from the operating activities is directly impacted by the change in inventory. So that is the most dominant factor there. And of course we can see that there has been no normal cyclicality this year. In this market, the rapid inventory changes are not possible in the same way as they were before. So the operating -- cash flow from the operating activities was EUR 11.3 million negative and the biggest factor there was the change in working capital minus EUR 16.5 million. In the first quarter our investments were EUR 1.4 million, of which EUR 1 million went to tangible investors mainly to finalize the Oulu mega store and processing center and EUR 0.3 million to intangible investments mainly to our digital projects. And this Oulu store is now complete and we have not announced any new strategic store projects.

About our dividend from the 2021. So Annual General Meeting decided that the dividend of EUR 0.20 per share will be paid and for now first installment EUR 0.08 has been paid at the end of April. The dividend is in line with the new strategy with more retail earnings to use to finance our growth and targeted dividend payout ratio is at least 25% of the result. Then if we move to our strategy, outlook and financial targets. I would like to once more repeat that in our strategy period '21 to '23, Kamux sees the huge market opportunity as a strongly digital and international retail chain and accelerates growth and the profitability development is built on business growth and scalability during the strategy period. Here in the center point of course is our seamless omnichannel customer experience and we believe that it is very important that the customer -- we can offer the customer a choice how they do their purchasing path meaning which digital channel they want to use or if they want to visit the physical stores.

And of course where we have been putting a lot of effort is to really enhance and improve the digital path especially in this customer journey. In the center piece of course is our Kamux management system and there of course the vision is to offer the customer European level stock. Then if we capture shortly what has been happening with our strategic agenda and as we have been dividing the strategic agenda into 4 pieces. And if we start with the seamless omnichannel customer experience and services. The most significant development there is of course the Kamux Plus 2.0, which is the new more enhanced and extended service which we have been launching in Finland and that has been very well received and also the penetration rate has been improving. Utilizing data and leading with the knowledge.

Kamux management system is now implemented in all operating countries, which is now a joint platform enabling better utilization of data and data-driven pricing, sales, purchasing and of course the vehicle data. And for example the data collection so we collect approximately 150 data points per vehicle what we have and of course that is a massive amount of data when we sold last year over 68,000 cars. If we go then to efficient processes, scalability and store strategy, there has been happening a lot. We opened now the Malmo store in Sweden and we announced the Nykoping and Kalmar to be opened in September. And in Finland, [ Karinam ], Pori and Petikko stores are moving into large premises according -- in line with the new strategy we have. In developing capabilities and continuous learning, the personal training was still focusing on managerial and leadership skills.

But we have also developed and made available for all employees training related to electric vehicles, which is very strongly growing segment at the moment. Then about the financial targets for the '21 to '23. Revenue growth of 20% annually, annually increasing adjusted EBIT and adjusted EBIT margin over 3.5%, return on equity over 25% and target to distribute dividends at least 25% of net profits. I would like to remind that quarter 1 is never the best quarter if you think about the full year targets and especially the spring summer season is of course very important for us. But if we look directly the first quarter so our revenue growth was 13.1%, adjusted operating profit was last year level EUR 5.7 million, adjusted operating profit margin was 2.4%, return on equity 19.5% and dividend for the year of 2021 was 41%. Outlook for the year 2022 is that we expect the revenue to be at least EUR 1.1 billion and adjusted operating profit to increase from the previous year.

Although Kamux business is not exposed to immediate Russia-related risks, Russian military actions in Ukraine have caused a significant uncertainty across the Europe. The situation may have an impact on people's consumption behavior and purchasing power, which may also create uncertainty regarding Kamux outlook for 2022. Then I summarize everything. So in the quarter 1, our revenue increased by 13.1% to EUR 237.3 million. Our gross profit increased by 4.6% to EUR 24.3 million. Our adjusted operating profit was at previous year level and was EUR 5.7 million or 2.4% of revenue. Like-for-like showroom revenue grew by 8.6% and international operations strengthened. Total revenue in Sweden grew by 21.3% to EUR 80.4 million and in Germany by 7.3% to EUR 22.9 million. And the war in Ukraine has had a significant impact on demand.

Thank you very much for your attention and we are happy to answer your questions.

[Unknown Executive]

Thank you, Marko. We have a couple of questions online. First one is related to integrated services. Does last year's increase of total revenue help with higher integrated services revenue this year? In other words, do you get any recurring revenue on your existing revenue mass or is the integrated services revenue purely transactional for you, i.e., onetime revenue?

[Marko Lehtonen, executive]

Depending on the financial service provider or depending on the market where we operate, we have different contracts. In some contracts, we get -- and now we talk about the financial income. So we get the income immediately when we sign the contract. And with some providers and in some markets, the financial income is more coming over the contract period. So meaning when the customer is paying so we are also getting our share of that. So there are different models, but the answer is yes, there is of course also impact from that.

[Unknown Executive]

So it's a mix. Another question related to integrated services. They grew strongly during quarter 1. Do you see that the growth level of integrated services will remain high also in the coming quarters?

[Marko Lehtonen, executive]

I cannot speculate about the coming quarters or what the level would be. But as I was saying that after corona pandemic in all countries, penetrations were decreasing so meaning the customer demand for these services was decreasing. It was improving faster in Sweden and in Finland, and it was improving slower in Germany, but now of course in the first quarter very strongly. So that is the picture of what we see at the moment.

[Unknown Executive]

One further question. Can you disclose the mix of electric vehicles and hybrid vehicles in your inventory and what is -- or what would be the optimal inventory mix today between electric vehicles and -- now there's a term here I don't quite understand, it's ICE. I wonder whether it's between electric vehicles and hybrid versus traditional cars.

[Juha Kalliokoski, executive]

There is big differences between country by country what kind of cars the customers want. Of course in Finland and in Sweden, we are very happy to buy hybrid cars and electric cars and it's balance between those. And of course the demand, all dealers are interested to buy about the hybrid cars and electric cars and that's why it's not so easy to buy those. And still it's very important to remember how big is the fleet in every country of petrol and diesel cars and those are still the biggest sales of the used cars.

[Unknown Executive]

I think we have around the same topic. So in terms of the number of electric and/or hybrid vehicles in the inventory versus regular cars. So is it something that you can say how much is there or is it something that is complete totally or at all the time changing of course?

[Juha Kalliokoski, executive]

Of course we want to increase those EVs and hybrid cars, but it's very important to remember that every car have the right price. It doesn't matter it's a gasoline car or diesel car and still it's available to sell if the prices are right. And we buy today car and we sell today car, it's daily trading business what we are doing. It doesn't go so that we changed to all cars are hybrid or EV cars. Of course we can and want to sell those, but still most of the cars are fueled up cars, petrol and diesel cars.

[Unknown Executive]

Another question really on inventory turnover. So inventory turnover days was relatively high. Are you confident that this ratio will reduce during the year?

[Marko Lehtonen, executive]

With 56 days, of course we cannot be satisfied with that level. But as I was saying that the purchasing market, it is tight. And of course if you look historically impact, usually we had a relatively strong fluctuations of the inventory level between the quarters and basically now since corona pandemic started, these fluctuations are not so strong. And for example now we really had to start to more increase the inventory level for the summer. I cannot speculate when this will surely normalize, but this is the environment where we are now and what we need to react on.

[Unknown Executive]

A question on competition. Some of Kamux's competitors are loss-making and cash burning. With financial market conditions tightening, has Kamux witnessed a change in behavior of such loss-making peers? If not, do you expect any change of behavior anytime soon? This probably relates to more international competition.

[Marko Lehtonen, executive]

If looking for international competition overseas and in Europe, of course there has been relatively dramatic news. But I would say that currently the news are more dramatic. And I would say the daily business operation, I don't think that we have seen any big impact on there yet. But of course that will be seen in the coming months.

[Juha Kalliokoski, executive]

And what we say about the Kamux, we are a profitable growth company and this is very important for us that we at the same time grow but make also the profit.

[Unknown Executive]

A further question on competition. It seems your competitor Saka continued to grow in Q1 in spite of the soft market. Can you talk a little bit about the dynamic among independent dealers in the Finnish market? How concerned are you about Saka's progress?

[Juha Kalliokoski, executive]

As I mentioned it, we knew and it's normal that so big market which are the used car market that there is coming specialists on the used car market and now we see for example Saka. It's good the whole business segment that there are possibilities for the customers and consumers buy a car from the different dealers and the markets are so big that there are possibilities for many companies to grow.

[Unknown Executive]

Very good. A further question on competition seems to be a topic today. More about competition in Germany. Do you see a change in the competitive environment for example from AUTO1 in Germany?

[Marko Lehtonen, executive]

The first answer is not really. If thinking about the German market, it is huge over EUR 80 billion and of course we are currently operating on the Northern Germany, mainly on Great Hamburg region. And if I think about the daily business or daily operations, yes, of course we can see the advertisement. We can see some locations they have. But I wouldn't say that that has been really impacting a lot to our business. So that I don't see.

[Juha Kalliokoski, executive]

And when we think about the consumers because other ones, Autohero makes only the online sales and we have also stores and this is differences between Kamux and Autohero and the Aures is the other one.

[Unknown Executive]

Okay. Thank you. There are no more questions online.

[Juha Kalliokoski, executive]

Thank you. Have a nice weekend.

[Marko Lehtonen, executive]

Thank you.