Bilia AB (publ) (BILIA) Earnings Call Transcript & Summary

Then I wish you all welcome to this telephone call regarding the announcement that Bilia made during yesterday evening. My name is Kristina Franzen and I'm the CFO for Bilia. And together with me, I have on the line...

Yes, Per Avander, welcome and hello, everybody, Managing Director for Bilia AB.

I would like to ask you all to put your phones on mute for a while. And then myself and Per would give you sort of a brief of the situation, and then it will be possible for you to put questions. But please, if you put your phones on mute in the meanwhile to have a clear and loud line available as possible. As I start then, yes, just to brief you on what actually happened. Bilia did receive last week, Thursday, November 19, a notice of termination of the dealer agreement from Volvo Cars. The dealer agreement, which was terminated, was for Sweden and Norway. It's for all our Volvo dealership, and it has a notice period of 2 years. The termination as such concerns both the Car Business and the Service Business. And the reason for that is that those -- both businesses are both included in the same dealer agreement. During this notice period of 2 years, the business will be conducted as before. So it's business as usual during this 2 years notice period. So that's a little bit about what has happened. And before I let Per in, I would again ask everybody to mute their phones. So everybody mute their phones.

Please.

There is still a lot of noise in the background. Thank you for helping us all.

Thank you. Yes. I'll take over from Kristina for a while. We are a little bit surprised, and we haven't had any dialogue with Volvo before we got the termination. We have today a fantastic customer satisfaction. And the customer, they love Bilia, both when we sell the car and when we repair the cars in our workshops. And we have seen all targets we have got from Volvo as a dealer. We have got one reason why they terminate the contract. Volvo like to have, in the future, smaller dealers. I'll talk about the termination. We have 1 contract in Sweden and 1 contract in Norway. And in the contract, it included -- it's include vehicle contract and a service contract. For the service contract, we have a block exemption in Europe. So we will applying again immediately as we meet all criteria for a new contract in the Service business. And Volvo can't block Bilia. So we see in the future, we will have a new contract for the Service business, the most important. If you look at 2019, 75% of the profitability is coming from the Service business and 25% from the Car business, including the used cars. And the used car is more profitable comparing to the new car business. The new car contract, it's terminated. And the end of the contract will be in November 2022. And I see for the future, we will have a discussion and negotiation about the future. But what will happen, I can't see it today. If we look a little bit what happened in the short and the long perspective, long term and short term. In 2 years, it will be business as usual, but we prepare if we don't get the new contracts for the new car business. We have a lot of locals for the new car business. Maybe we can put in other brands we have in the Bilia Group. We can terminate some rental contracts we have for the real estate, or we can put more efforts in the used car business. As we have communicated since 1 year ago, we have the Netbil. It's a new effort of older used cars. And we have in long-term target of 25,000 used cars in the Netbil business. If we don't sell new cars in long term, we will have a -- in the future, we'll have lower risk in stock of new cars in stock and demonstration cars. We have lower capital tied up. So it -- in the long term. It is a transformation in the car industry for the moment. It can be the direct sale for the manufacturers. It can be Internet sales or traditional sales, what we have today. Advice from a salesman, test driving and everything, we get an offer. What will happen in the future, I can't see, but maybe it will be 30%, 40% of direct sales, maybe and 13% of net sales in the future and the rest at traditional sales. But it's not easy today to speculate what will happen in the car industry in the future. But we can see it's a transformation. Yes, Kristina, back to you again.

Yes. And I think you mentioned in the beginning there, Per, that we have also initiated discussions about future cooperation with Volvo. So that has not yet started. I mean it's only 2 business days since we actually received the termination. So we have an agreement to start discussions, but they have not yet been started. That means also, of course, that there are some things that will develop over time in terms of how our future cooperation would be set up and outlined. So let's see. Per, should we then check if there are any questions?

Yes.

From those of you listening in. So please feel free to put your questions.

This is Mika from Handelsbanken. Can you hear me?

Absolutely. Mika, we hear you.

Do you expect that the sort of you could be selling some new current dealers some related assets to Volvo in this process?

Let's see if we heard your question. Was your question whether or not we would be able to sell some of our asset like equipment in our facilities to Volvo? Was that your question?

Yes. Or -- yes, or retail stores or something like that?

Yes. I think when it comes to the Service business, we are continuing that business, as Per pointed out. So it means from that perspective, we would, of course, keep that. And that is sort of the majority of the fixed equipment. And when it then comes to facilities and what type of equipment that would be there, there has not been any discussions with Volvo around that. But I think Per, do you want to?

Yes. Yes. We see in the future, we will have a contract for the service. So we need all equipment we have and tools and everything and our mechanics in the future. If you talk about the rest of the business, the new car business, I see we will change the infrastructure we put in used cars, maybe to change, close down some of the smaller facilities and use the other brands we have in our portfolio. And maybe in the future, Volvo asks us to help them to deliver cars and get the provision for that. And as I said, we have a lower risk in the future, if you do that in new cars in stock and demonstration cars. So we are not there yet. And some of our real estate, we have short-term contracts for them. So we maybe can cancel the contracts as well.

And we did get the question on the earlier conference in Swedish. If we were convinced that we would actually continue to get authorized on the service side, and there, we -- is that we are convinced and that we would continue to have that type of authorization going forward.

Do you think that the sort of Volvo is willing to build also their own service network? Or are they just chasing the sort of the new car related retail ambitions? What's your feeling?

I couldn't hear you. Can you take it again, please?

I said do you think that the sort of Volvo is willing to build up their own new sort of service network? Or are they just looking for getting over the taking over the dealers -- the new car dealership operations?

So your question is, do they only want to have the new cars? Or would they also set up their own Volvo workshops, right? That's your question, Mika, right?

Yes. Exactly.

Yes. Yes. It's not so easy because we have 600 mechanics and body and paint shops mechanics in Sweden. And then we have a couple of hundreds in Norway. It's not easy to do that in 2 years. To build up the network for workshops and to have the right knowledge and the technology of each new Volvo is really complicated. So to build up that in the whole Sweden is not easy for them. So -- and we can compete because we were convinced that we will get the new contract. So we can compete with them. And we have a good relation with our customer today. The customer satisfaction is higher in average in Sweden of Volvo dealers is one example. So the customer like to go to Bilia today. So to start from 0 and find new customer is -- it will cost a lot of money.

It's probably a question to put to Volvo for those that have the opportunity, right, to see what their strategy is?

Yes. Yes.

We have not received any information about the reason and how they think going forward.

Okay. Then concerning the sort of the used car business, have you been -- of course, the sort of new car business has been an important part of sourcing operations for your used car business as well. So how are you going to handle that going forward?

Yes. We -- when I talk about Netbil, it's an auction and is an outlet for used car. And we launched now Västerås, a new facility for Netbil used cars. So we are going forward with the concept we have. And in the other conference we had, we got the question about how can we find used cars when we don't sell new Volvo in the future? But today, 75% to 80% of all new car we sell from Volvo is fleet business. And often, you have a finance company behind. And so you don't get the used car as traditional sales we had for 10 to 15 years ago. So what we are doing today we have a cooperation with Volvo Finance Bank and buy some cars from them. And for the other finance companies, it's a sort of an auction, and we bid for the cars. So it's the same today, and it will be the same tomorrow. And sometimes, we have a purchase department. So we buy cars from private person as well. So the same in the future. If we sell the new Volvo or not. We will find the used cars.

Thank you, Mika. Are there any questions from anyone else on the line.

One question from Erik Oberg through DNB. I'm a little bit confused regarding the gross profit stemming from the new car sales for Volvo. You mentioned SEK 80 million in the press release. But how do you define that?