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

Welcome to Bilia Q1 Report for 2023. [Operator Instructions] Now I will hand the conference over to Carl Fredrik Ewetz. Please go ahead.

Thank you very much for that introduction, and welcome to Bilia's Q1 results presentation with CEO, Per Avander; CFO, Kristina Franzen; and our Deputy CEO, Stefan Nordstrom; and I, Carl Fredrik Ewetz, Investor Relations. We follow our quarterly procedures. And as you can see the agenda here on Page 2 similar as last quarter, and we will start with how we see the current car industry, and I leave the word to Per Avander.

Okay. Thank you very much, carl Fredrik. The current market situation. There is still good demand in the service business, but important tire season is a little bit late due to the late spring with cold weather, especially in Sweden and Norway. . Continued high order backlog for new cars. Except the Norwegian market, there is a more normalized situation. Weaker demand for new cars, especially private consumers Private leasing is much more expensive with higher interest rates. So we can see our private consumers, they are a little bit -- they are closed their wallets for the movement. We see an increased demand of used cars. And today, we have a little bit higher stock of used cars in all other countries. There is an ongoing consolidation in the car industry. It will be fewer dealers and the smallest workshops, they sell their business or close it down because it's heavily investments with pure electrical vehicles in the future. The industry is changing several brands are moving towards on an agency model. One example is Nissan in Sweden, where we will be a pilot market from -- in the beginning of next year. And many new brands are launching this year in Europe, mainly from China. I heard a figure about -- they have manufactured 250 manufacturers in China, so it's huge. Okay. We go to Q1 2023. Net turnover increased due to availability of cars and growth in the Service business. We report a result of SEK 431 million and a margin of 4.4%. It's the third best quarter 1 ever, which you can see on the right-hand side. But if we adjusted for divested operations, we are in line with the last year, SEK 500 million, as you can see here. We reported better earnings in Sweden and for Western Europe, it's a new record quarter, really, really strong. The important service business, as I said, there is still a strong demand in the service business, and we have a good booking times in all our workshops. We had an organic growth by 10% with an operational result at SEK 297 million. Higher results year-over-year within the Service business, considering divested operations in Sweden and Norway. It was the Volvo business we sold in Oslo area and in some cities in Sweden last year. Norway reported a lower earning. It depends on different reasons. One is divested operations, as I said, in Oslo area. Another is new business areas. One is dismantling in North Norway, and a brand-new facility we have opened up now in [indiscernible] it's, you can say, Southwest Oslo. The third is acquisition of Land Rover and Jaguar operations in Oslo area with lower profitability in the Service business. But we take a lot of actions. We have a centralized excellent team to help in the different business areas, so we can grow the profitability in the Service business in the future. The car business. We have a backlog of a little bit over 23,000 new cars. Bear in mind, a normalized backlog is around 13,000, 14,000 units in the Bilia Group. So still, we have a really good backlog mainly in Sweden and Western Europe. We had a profitability of SEK 158 million. New car business, we had a higher result, but a little bit lower in the used cars business, SEK 82 million. But in a historical perspective, it's a good result. The gross profit was a little bit lower in comparison with the last year, especially in Norway. Order intake of new cars, adjusting for divested operations, were 53% lower. And as I said in the beginning, the Fleet business is stable, but the private person, they are waiting and see what happened with the interest rate and the new prices for the households and everything around it. But in Norway, we have had a lot of cancellation of new cars. It was Toyota, a pure electrical vehicle with a lower range, and there is regulation. If we sign an order a couple of years ago, the customer can cancellate the contract. So you've seen some cancellation, but it's only in the Norwegian market. Kristina?

Yes. Let's move over to the financial position. For the third quarter, we reported a negative operating cash flow of around SEK 492 million. The reason for that was that the working capital was negatively affected primarily due to a decrease of trade payables regarding purchases of cars. The inventory levels in Norway, both when it comes to used and new cars are assessed to be on a high level at the end of the quarter -- that is also partly caused by the cancellation of customer orders that Per mentioned previously. The inventory levels for the other countries are assessed to be on a good level. So for the second quarter, we do have a reduction of inventory level as a target for our operations. From a cash position point of view, we utilized, at the end of the quarter, just below SEK 1.1 billion of the credit payment amounting to in total SEK 2.3 billion. Those of you that follow us know that we have extended the credit limit by SEK 800 million in February this year as the backup credit for the bond loan that is due in October 2023. Together, this resulted in a net-debt-EBITDA relation of 1.1x, which is well below our limit of 2.0x. And then just to finalize during the afternoon today, our Annual General Meeting takes place and the proposal for the Board that was made as part of the release for the fourth quarter is that there will be a dividend of SEK 8.80 per share and that will then be paid in 4 installments starting in May if the AGM approves that proposal.

If we have an outlook for the quarter we have now. The consumer confidence is a little bit better in all our countries. But what we expect that the private consumers, they are wait and see for new cars, but we expect we will have a really good demand for used cars. We have seen then that phenomena in other recessions we have had 15 years ago with the Lehman Brothers crisis, the bank crisis is '92. The private consumers, they go for not for new cars, but for used cars. . And the Fleet business, as I said, much more stable. So we expect we will sell a lot to the companies. Carl Fredrik, you take over now.

Yes. Thank you, Per. We continue with the outlook and perhaps not a surprise, but we continue to see a weaker order intake for new cars in Sweden and Norway in the coming quarter. This is mainly explained by the ongoing economic uncertainty with less money to spend for the consumer. Having said this, we continue to argue that there is still a pent-up demand in the market from the transition going on in the car industry. We see order intake in Western Europe to remain on a normal level. In electrical cars, interest remain high with perhaps a pending demand. This relates to that the market condition remain less supportive since the reduction of climate bonuses and subsidies for chargeable vehicles in our market. If you then add the recent price cuts from Tesla, we believe customers will remain more reluctant and perhaps wait and see how the situation develops before switching to more sustainable alternative, i.e., electrical cars. We see good demand for used cars on the back of what I've already mentioned, uncertainty, a pent-up demand, less money for the consumer and less subsidy for EVs. Consumers use to keep the rail cars or buying a cheaper used cars, typically in IC's, internal combustion engine vehicles, or hybrids. When it comes to prices for new cars, we see a rather stable situation in Q2, but don't rule out some volatility, not the price drop in EVs post Tesla's price reduction. Going over to the Service business. Per mentioned that we continue to offer our customer what we believe is a high-quality service, and we see a solid outlook for the service business in the coming quarter. In this quarter, it represented 70% of our results. And with interest for used cars picking up and new car deliveries, we see continued good demand here. Looking at M&A, we see longer lead times, increased supply and slightly lower prices due to the weak economic situation, higher financing costs and an increased requirement for investments. To almost repeat what we said last quarter, we want to be part of the ongoing consolidation, while we evaluate most businesses we are being offered. And we do actively, of course, search in areas we think would be a good fit for our current and future strategy. Cost savings, obviously, on the agenda. And as we communicated in our year-end report, we launched a cost saving program almost a year ago and this program is going according to plan and it's designed to reduce costs without sacrificing the quality of our service. These were our final words. So we open up for questions, please?

[Operator Instructions] The next question comes from Andreas Lundberg from SEB.

Start off with what you ended with, the cost savings there. Could you update us on the timing and the magnitude of that program?

Yes. I mean we initiated the program quite a while ago, right? I think it was after the summer we started to prepare it, and that is ongoing, right? So it's running according to plan, both in terms of cost savings and also in terms of when it should be finalized. So part of the savings are -- have kicked in and some will kick in throughout the year.

Okay. Can you give some color or quantify it?

I don't think we have done that in the past, Andreas, right? But it's a normal level, right? It's on [ okay ] level I would say. It’s not giving any numbers, right? It’s not significant enough that we should [indiscernible] any cost. So I don't have any numbers to give you, Andreas.

And this is, of course, something we always do when things are turning a little bit sour, and we do it all the time. But in this case, we obviously have looked into it a little bit deeper.

And then on the price reductions for Tesla, could you maybe describe a little bit what you think this will mean for both the new car and the used car business?

It's easier in Sweden, there are all manufacturers, there are competitors. Maybe Ford Mustang said that they will follow them, but the rest, they said we will have a stable pricing on new cars. So we don't see a reduction of the price for the competitor to Tesla in Sweden. And Tesla, okay, they are -- will be bigger and bigger in the Swedish market when we are talking market shares. But they don't put the price in the market. We don't see the pressure of the margin and the pricing of used car in Sweden. But in Norway, they are a market leader in the market. So when they reduce the price, it happens a lot with all other competitors or new cars, they have a huge problem to sell the cars. And there is so many used Tesla in the market. So when you can buy a Tesla for NOK 200,000 and you can't take NOK 350,000 for pure electric XC40 Volvo, for example. Therefore, we have had a bad quarter for our used car business in the Norwegian market. So a little bit different in the markets. And there is another complication as well. The currency is weak today if you compare to euro, so the manufacturers, they have problem to reduce the German brand. For example, there are problems to reduce the price because if you go back maybe 1, 2 years, it's 20% less between the currency of the Swedish crowns and euro.

Right. And that doesn't mean that some manufacturers or resellers or priorities -- prioritizing selling used car outside of Sweden, for instance?

[indiscernible] Not to say, they export a lot of used cars.

And given the currency situation, does that also mean that some resellers or be it manufacturers try to sell more cars outside Sweden -- used cars, I mean?

Yes. For the moment, I think a little bit [indiscernible] if I compare to the quarters ago, [indiscernible] looked at our [indiscernible] it was much more to go back 9 months ago to sell the cars outside Sweden and Norway, Norwegian market is not the same today [indiscernible]

No. I agree with you. I think the activity was bigger. If you go back, of course, we will have some that will sell the cars abroad due to the currency, as you mentioned on but we will see for the moment, it's a little bit, how to say, slower.

And lastly, given the high order backlog you have and then the, I guess, some still constraints on getting supplies, what's the potential to deliver on this order book or order backlog in 2023?

I think the chain of, how to say, supply of component is better, but it's not perfect yet. And I would say it differs a little bit still, different from brand to brand. And I think also what we can see, you have some of -- some of the brands have a little bit of challenges in the factories. So I think still it's not a perfect supply chain. So with that, I still think we will have some challenges during this year.

Please state your name and company. Please go ahead.

Mats Liss, Kepler Cheuvreux. Two questions, I guess. First, the service sales, so I guess it's sort of moving into a seasonally strong second quarter. And are there any reasons to believe that this seasonal pattern won't be happening this year? I mean are consumers more sort of reluctant to service their car, so they postpone the service this year and maybe do later on in the autumn?

No, we don't see it. [indiscernible] I've been in different recessions. So the customer, they still invest in their cars. So I don't see that the booking time is going down or something like that. So we see we will have a strong quarter 2 now and, I guess, for the rest of the year as well. So we don't see a reduction there.

Then about this backlog again, could you say something about the mix? I mean you mentioned that Sweden was important. I guess you've sold a lot of electric cars and premium cars, I guess. So the pricing there of the backlog is price of car prices are sort of quite high. Could you say something about that?

Yes. We have 15,000 units in Sweden and close 4,000 cars in Western Europe and 4,000 in Norway. So the average price is increasing because it's more pure electrical vehicle in the backlog. But a little bit, as Stefan said, different between the brands we have for Toyota, we have a really high back in Sweden, but for BMW, it's a little bit less because they have had what you can say, we have a little better situation with components. So we have delivered more BMW. And still, we have a really good backlog for Volvo. So I would say the average price is a little bit higher, if you go back 2 years ago.

Then about the country mix there or geographical mix. It seems that the Western Europe part of business is sort of improving now gradually, is it a trend? I mean is it not any one-offs included there?

I would say that there are no specific one-offs included in the Q1 results [indiscernible] Europe.

What we can say, if we take the Western Europe [indiscernible] brands, we are, how do say, representing are #1 in the Belgium market and #1 in registration in the Luxembourg market. So we have the BMW brand is very, very strong brand. And I think also we sell average price, quite high average prices in that market. So...

And we have launched a brand-new facility in Luxembourg, much bigger. In the past, we had used cars outside. So we think we will start to sell more used cars, and we have a big workshop as well in Luxembourg. So now we have put a lot of efforts into the markets in Luxembourg. And as Stefan said, BMW is a really strong brand in volume and Belgium and Luxembourg.

There are no more questions at this time. So I hand the conference back to Carl Fredrik for any closing comments and written questions.

Okay. Thank you very much for listening and showing interest in Bilia. We hope to hear from you soon again, if not during our Q2 report. Would questions arise in the meantime, do not hesitate to contact us. And have a nice day and a pleasant week. Thank you very much. .

Thank you.