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

Welcome to the Bilia Q3 Report for 2025. [Operator Instructions] Now I will hand the conference over to IR, Carl Fredrik Ewetz. Please go ahead.

Thank you very much for the introduction, and welcome to Bilia's third quarter results presentation with CEO, Per Avander; CFO, Kristina Franzén; and I, Carl Fredrik Ewetz. We also have our Deputy CEO, CFO Stefan Nordstrom, with us today. We're happy to present a solid result with higher order intake for new cars, positive cash flow and a solid financial position. I will come back to the outlook at the end of this presentation. Here's our agenda. Per will start with the current situation in the industry, followed by Q3 numbers. Kristina will go through the financial situation, and I will conclude with our outlook. So let's start and I leave the word to Per Avander.

Thank you, Carl Fredrik. In Sweden, we see signs of better interest in new cars from private customers. In Norway, we see good demand from private customers, driven by good campaigns and new taxations of cars from the government. In Western Europe, the demand from private customers remained stable. In the Parts and Fleet business, we see a little bit higher activity in all our countries. Most of our brands have strong campaigns, big discounts, attractive private leasing offers, and there is a high supply of cars from the manufacturers. The demand for used cars is on a good level in our countries, and we see stable prices for all cars, except fully electrical vehicles. At the same time, we know that in end of quarter 4 in Sweden, we see a lot of electrical vehicles 3 years old. All brands coming back from customers due to the government incentives was terminated approximately 3 years ago. In Bilia, the stock of used cars is on a low level in Sweden and on a balanced level in our other countries. There is a good and strong demand in the Service Business in Norway and Western Europe with good booking times. In Sweden, we see better activities, but still somewhat lower booking times. Part of the explanation is some years of lower new car sales and export of young used cars. The total car market in Sweden 2024 was almost 20% lower compared to an average market in the last 10 years. During the last 3 years, there is a shift in the car population to more older cars. Net turnover was better than last year. We reported an operational earnings of SEK 310 million [indiscernible] with a margin of 3.2% compared to SEK 280 million last year. We had higher profitability in Sweden related to both Service and Car Business. Our operating profit was SEK 284 million compared to SEK 216 million last year and included a profit of SEK 35 million related to divested properties in Sweden. Therefore, earnings per share was SEK 2.07 per share compared to SEK 1.15 last year. On this slide, you can see the quarter 3 profitability from 2019 to 2025 in each country. And on the left-hand side, you can see Sweden, an improvement of SEK 28 million. In the middle, we have Norway, and there you can see some small improvements. On the right-hand side, you can see Western Europe delivering slightly lower result due to underlying less new car deliveries. On this waterfall chart, you can see the different business areas. We improved earnings in the New Car Business and the Service Business, but dropped a little bit in the Used Car Business. We are moving over to the important Service Business, representing 72% of the earnings. In all our countries, we see a positive organic growth with an average of 4.1%. One reason is 10% higher deliveries of new cars impacting our delivery workshops positive. There are same number of working days in Sweden, Norway and Luxembourg, but 1 day less in value. We report earnings of SEK 233 million, which was SEK 12 million higher than last year. There are several reasons why we report a higher result. As I mentioned, higher deliveries of new cars; another is in general better activity in our workshop; and third is higher organic growth. The order intake of new cars adjusted for acquired and divested operation was 20% higher compared to quarter 3 last year. As I mentioned, we have seen a little bit better activities in all our countries, especially in September. For the Car Business, we reported a result of SEK 81 million compared to SEK 73 million last year, coming mainly from Sweden. The profitability for cars in Norway and Western Europe was on a slightly lower level. For Used Cars, we reported earnings of SEK 61 million compared to SEK 96 million last year. In a historical perspective, it's a good level. As I mentioned in the beginning, the stock of used car is on a low level in Sweden and at a balanced level in Norway and Western Europe. The reason for the lower earnings was price pressure on used, fully electrical cars. We have increased our underlying backlog of new cars with 900 units. For many different brands and models, we have really short delivery times. To buy that, we think 12,500 new cars is a good level. This means we often can sell and deliver a car in the same quarter. Yes, Kristina, it's your time.

Thank you, Per. So financial position. During this quarter, we reported a strong operating cash flow just below SEK 800 million. This reported cash flow did include a received payment of some SEK 300 million related to the divestment of 6 properties in Sweden that Per mentioned before. After adjusting the reported operating cash flow for these divested facilities, this cash flow amounted to just below SEK 500 million for the third quarter, which is still a strong cash flow and in line with last year's level. The 6 properties that were divested are used in our Porsche, BMW and Toyota operation, and these facilities are now leased back from the new owner for a period from 2 to 15 years. For the group, the divested facilities generated a nontaxable profit of SEK 35 million, which also impacted our tax rate for the quarter, going from a normal tax rate of around 22% to a tax rate of 4% only. The divestiture of the 6 properties in Sweden enabled us to finance our acquisition of Volvo Lastvagnar operation with basically no impact on our net debt leverage. As of July 1, we acquired 2 companies that perform sales of new and used Volvo Trucks and provide related services. The business had in 2024 a turnover of some SEK 1 billion with an operating margin of around 4.5%. The business is conducted through 9 facilities in mid-Sweden with around 160 employees and will be branded as Bilia Trucks going forward. We do look forward to the cooperation with Volvo Lastvagnar, which is a significant player on the Swedish truck market. During the end of the quarter, we also acquired a Jaguar and Land Rover business that has been conducted by Sandven AS in one facility in Bergen in Norway. The business had in 2024, a turnover of some NOK 280 million with an operating margin of around 3.5% and the number of employees was 29 persons. So during the quarter, we did make the second payment of SEK 130 million related to this year's dividend of SEK 5.60 per share in total. The dividend is paid in 4 installments, where the remaining 2 installments are in October and January. At the end of the third quarter, we had an earnings per share of SEK 5.76 versus SEK 5.08 last year. The financial target for the group is to distribute at least 50% of the earnings per share to our shareholders. By the end of the third quarter, we utilized some SEK 600 million of our credit facilities of SEK 2.3 billion. As of the 1st of October, we also repaid a bond loan of SEK 500 million, which we refinanced during the first quarter this year by issuing a new bond amounting to SEK 800 million with a maturity terms of 5 years. And then finally, our net debt, excluding IFRS 16 at the end of the quarter amounted to SEK 2.5 billion. That was about SEK 400 million below the net debt at the end of last year. Our ratio and net debt in relation to EBITDA was then 1.5x compared to 1.6x by the end of the second quarter and 1.7x compared to December last year. By that, we have made a reduction and are also then well in line with our financial target to be below a ratio of 2.0x. So I think that's about the financial position.

Good. Thank you for that. Moving over to outlook. Our efforts to enhance profitability and operational efficiency remain a top priority, while we accelerate this process by introducing an efficiency program. The SEK 150 million savings will be fully implemented during the second half of 2026 with an estimated onetime cost of approximately SEK 25 million. Profitability, cost control and capital allocation remain top priorities throughout the whole organization going forward. Moving over to the Car Business. For used car sales, we believe the remainder of 2025 may be characterized by some price pressure and higher competition as many electric cars will come back due to, for example, private lease renewals and the government incentives was terminated approximately 3 years ago, like Per mentioned earlier. We currently have a low stock of used cars and are well prepared for such a situation. For new car sales, we believe we will continue to see signs of increased activity from private customers. Demand from corporate customers is stable, and we see indication of some increased interest also within this segment. In addition, the forecast for new passenger cars registration for 2025 in Sweden is trending higher, now at 280,000. So combined with the assessment of a gradually better economic situation and improving forecast for cars, we see a cautiously positive development in demand for new passenger cars during the rest of 2025. Then briefly on Bilia Trucks, which is newly acquired Volvo Truck business. Implementation is going according to plan, and the company is performing. This is a business we believe strongly and see a good complement to our existing businesses. In our Service Business, we expect continued stable demand for -- during the remainder of 2025. In Q3, the Service Business represented 72% of our operating profit. We see good opportunities to continue developing our Service Business through that improved customer satisfaction. Then briefly and finally, on consolidation, the rapid tech development of cars, especially the increased integration of electronics and digital systems has led to a growing need for advanced service expertise. This development benefits Bilia and drives a consolidation of the market for players with the capacity to meet future service needs and strengthen their positions. We continue to evaluate opportunities in attractive business areas and are ready for continued growth. Yet again, a healthy balance sheet is always a priority for us and will continue to be so. This finalizes our third quarter presentation, and we can now open up for questions.

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

If I start with the activity, you talked about some increased activity among private consumers. Can you perhaps give more color on what you see and perhaps the reasons for why you see it?

Yes. One reason, as you mentioned, it's coming from -- we sell more cars, new cars. So I often talk about the delivery workshops. So we have had a better activity in the delivery workshops. And we see a little bit better in our body and paint shop as well.

Andreas, Stefan here. When it comes to sales, we can see one example, we measure the floor traffic in all our showrooms, and we can see the activity with customers entering our showrooms is increasing. We can also see when we measure like credit requests when people ask for offers and business proposals, we can see that, that activity is increasing. And I think it's connected to also when you see the offers of private lease from our manufacturers. Today, how to say, the prices are attractive and the campaigns are better. So in that perspective, we see the customers like increasing the interest. And then we also can see the higher activity in the fleet business. It's more activity among the fleet customers. The -- how to say, the thing we have to do and work with is the interest is higher even there.

That was a good answer, Stefan. Can I ask a follow-up on the fleet activity? Has that -- as far as I'm concerned, this has been rather stable for some time? Or why do you think you see higher activity among fleet customers?

No. But I think as Per mentioned, we can see that the interest rate is going down. I think the customers now, they have been like saving up a little bit. So now it's time and it's the pent-up demand for cars, new cars among private consumers because they have been waiting.

And the best market for us, the last quarter is Norway. We are coming from low figures last year, but we sell a lot of the new cars in the Norwegian market. And one reason is that we changed the taxation to the government next year. Today, you have a VAT, which is NOK 500,000, you have to pay VAT. And the government now, they say next year, it would be NOK 300,000. It will be -- the cost for the customer is NOK 50,000. And the year after that, they will reduce to 0 to NOK 75,000. So what we can see now, we can see a better activity in the Norwegian market from both fleet business and private consumers. So yes, we think it can be really good in quarter 4 and the next year for order intake in the Norwegian market.

If I shift gear to the service operation, can you start with talk a little bit about BEV, you have seen some pressure on the profitability there in the last, call it 2, 3 years. The reasons behind that? What you are doing to improve it? And perhaps also the difference between the second and the third quarter? I recall Q2 was a little bit tough, especially on the Swedish side.

It was Sweden and we had low booking times. And it was not only Bilia, it was a market end demand you can say. And what we try to do now to work with the older stock of cars. When I say older, often the customer, they are really loyal, the first and the second owner of the car. But when the car is 7, 8, 9, 10 years old, sometimes we lease them to independent worker. So we try to work hard with them. And as Stefan mentioned, the interest rate is lower. So maybe some of the customers, they had a movement like wait and see. So we see a little bit better activity. As I mentioned, when we sell more new cars, we have more to do in our workshop as well.

Andreas, one thing when we see the result in aftersales, you can see like when we measure it when you take it in SEK, from 2014 to this year for the first 9 months, it's actually the second best result we have. Only 2021 was higher when you talk about SEK. So it's actually, I would say, a strong result in the aftersales business. And we will continue with efficiency and the efficiency program and try to do it step by step.

Yes. Our profitability has come down, right? Maybe the third quarter was a decent one, right?

Yes.

Right. Okay. Cool. And then on the efficiency program you mentioned, could you give more flavor on this? Where are you looking to be more efficient? What does it mean for the Bilia organization?

I mean it covers all aspects of the group, right. So it's to do what we do in a better way to be more efficient. I think we also talked a bit about it on the Capital Markets Day we had. So it will involve most of the operations we have, but it will not involve the sort of production people in that sense. So we will -- it will be implemented fully by the second half of 2026, and there will be some onetime expenses that will be taken again in the fourth quarter.

Is this mainly labor? Or are there other savings you think you can make?

Yes. I mean the majority refer to people cost, but this will, of course, be handed in as a smart way as possible and that will be sort of taken in a natural way to the extent possible.

And it can be consultants in our IT subsidiary company, is one example.

It will involve consultancy, but also just to consider when people are leaving do not make replacements. So there is different aspects of it.

And lastly, on the Used Car business, you talked about an increased supply mainly coming from EVs in the fourth quarter. I mean what do you think are the implications and then also for the residual values also considering that you most likely value your cars multiple times a year?

What we do, as we mentioned, Andreas, that is, of course, that we make an assessment of the expected market value for all the cars where we have a residual value, and we do that on a monthly basis. And also here, we have, of course, done our very best estimate for the market value when they are being returned and that also mean that we have taken a little bit more cautiousness into that valuation we have done for those cars.

We think we have control over the residual value for the cars coming back in the end of quarter 4. But all brands will sort of a peak in Sweden because they got the incentive 3 years ago from the government. So what happened in the market because all our competitors, they have residual values and the financial companies as well. So we don't know what will happen with the peak. Therefore, we talk about it.

But I think also, Andreas, Stefan, we have prepared for the situation. So we have, like as Per mentioned, really low used car stock in the Swedish market. So we are well prepared. So from the beginning of this year, we have worked to reduce the stock of used cars, and it's a quite big change from the last, how to say, year-end. So we are well prepared now when the cars are coming because the stock in the Swedish market is low now for us.

The next question comes from Mats Liss from Kepler Cheuvreux.

A couple of questions. First, I mean, fourth quarter is normally seasonally strong there for Service. And then again, you mentioned this EV -- well, coming back a lot of EVs there. Should we expect this to be balanced seasonally stronger fourth quarter? Or is it marginal impact there since you have prepared for this return of EVs?

We never give forecast, but it's sort of a guideline to you. So I guess it will be a pressure of fully electrical cars. But Stefan mentioned, we are prepared for it, and we can survive and wait a little bit. So we don't have big discounts for EV cars in quarter 4. We sell them too fast. So we can wait and see in quarter 1 with some of the EV cars and it's only in Sweden. But in the other hand, we think we will deliver more new cars in the Norwegian market. As I mentioned now, there will be the changing of taxation for the government. So there, we see some signs that it will be a good new car market in the end of quarter 4. So maybe sort of a balance between a little bit drop in Sweden, but maybe better in Norway where we talk new and used cars.

Then about service then. I mean, I know previous quarters, I think in second quarter, you mentioned that car owners were a bit cautious in handing in their cars to the paint and body shop due to -- well, they didn't want to be too aggressive on paying for those kind of measures. Have this sort of eased now? So you see that there is an -- well, pent-up demand for paint and body shop works as well in your...

Yes. We think it is a little bit better when we look at the booking times in the different body and paint shops now. So the reason in quarter 2, maybe it was too costly for the customer to pay because often they have a sort of what you say in English, they have to pay some cash when they have the insurance company and some can be quite high. So you see better activities in the body and paint shop. I guess the customer thought it was too expensive for a while, but now they have to do it. So -- and I've talked with so many colleagues and competitors in the car industry and nobody could say it's only this problem we have had because it was the same for all at that time. But now it's a little bit better again. Because if you look at the motorways, it's happened a lot of accidents every day. So it must be a lot of job in our body and paint shops.

And then you mentioned, I mean, the cars become more high-tech sort of. And you also mentioned that you try to keep the cars in your service shops for longer, second and third owner there. Does this mean that you gain market share? I mean -- or would you say that you are sort of keeping your position?

It's not easy to measure in the Service Business because you don't have official figures for that. But what we can measure in each workshop, we can see how many cars we have into the workshop from 0 to 3 years old and for 4 and 6 years old and older than that. And then we can see a measure in each workshop and we can see more older cars into our workshop because we try to be attractive with different campaigns and so on.

When you do -- well, when you extend the service offers, do you use sort of brand-specific spare products? Or could you sort of offer the sort of multi-brand or...

No, Mats, it's brand-specific parts anyhow. And as we mentioned before, but we are like working more with also our vehicle dismantling where we renovate spare parts. So we are starting to also offer slowly now, but renovated part, but it's brand-specific parts with warranty. So that's no change. But then we look into how can we do, how to say, have a special pricing for the older segment. So that's what we are working with.

But we don't like the multi-brand strategy in our workshops. So specific for each brand. So if you see we have showroom for Volvo, there we repair and service for Volvo.

Great. And finally, just about your truck operation now growing in importance gradually, I guess. But will this sort of be more of a Swedish operation? Or are you sort of addressing Volvo Truck brands in other countries as well?

The easiest way for us is to grow in Sweden first. And when we are firmly in Sweden, we maybe can go to Norway or Finland in the future. But we -- now we integrate the business into Bilia and we have full respect for the business because the Service Business is much bigger. If we say often that when we talk Bilia, the turnover is -- although the total turnover is 20% to 25%, but here it's 40%. So it's a really big Service Business. So if you will see some step for growth, it will be in Sweden.

The next question comes from Alexander Siljestrom from Pareto Securities.

So a couple of follow-ups from me. Wondering if you can talk about how you see the lower the VAT exemption in Norway for EVs impacting demand in 2026.

No, I didn't follow. What did you -- could you please repeat that? The lower tax rate?

Yes, the VAT exemption -- lowered VAT exemption in Norway, how will that impact demand in 2026?

Yes. If you start in the past, it was free from VAT, fully electrical vehicles. A couple of years ago, the government took a decision. So today, you have to pay VAT over NOK 500,000. And now they take a decision for next year, NOK 300,000. So what we think and our Managing Director ,Frode Hebnes, in Norway say to us, it will be raise now with a lot of order intake because you save SEK 50,000 each car from now to the end of this year. And then the government say, 1st of January 2027, there is no incentive when you are talking VAT. So next year, the customer will save SEK 75,000 each car. So what we think we will have a really good order intake this year and next year.

Okay. That's very helpful. And then maybe just on the cost savings program. If you can expand a bit on the phasing, do you expect some positive impact in H1 and then reaching a full run rate in H2? Or how is that looking?

Yes, there will be some positive effect also during the first half of the year. That's right. But it will be fully implemented in the second half.

Cool. And then maybe just a last one from me on the used EVs here in Sweden. Do you -- and obviously, a drag on Q4, but do you expect this to be a drag into Q1 and Q2 as well? Or could it be over post Q4?

We think it will come back, cars also in the Q1 next year.

But you have the peak now in Q4, and we don't have so many residual values in our books, but different -- for example, BMW Financial Services and Volkswagen Financial Services, they will have a huge amount of fully electrical vehicles in the end of this year. But for us, it's not -- it's limited, the amount we will get back. But the peak is quarter 4.

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

Thank you for that, and thank you for listening. And if any further questions, just give us a call or send us an e-mail. Thank you very much.

Thank you.

Thank you. Bye-bye.

Thank you. Bye-bye.