Inter Cars S.A. (CAR.WA) Earnings Call Transcript & Summary

Hello. Good afternoon. Welcome to our teleconference of Inter Cars Poland regarding the results of second quarter of 2025. On behalf of the Board, we will have today Krzysztof Soszynski, Vice President of the Board; and Piotr Zamora, Member of the Board. Our meeting will be divided on 2 parts. The first part will be the presentation of the results and economical situation of the market. On the second part, you will have the possibility to ask the question. So please, Krzysztof, the stage is yours.

Good afternoon, ladies and gentlemen. I would like to introduce our results of sales. We will start, as in the previous time, based on the description of the distribution market, distribution of the automotive parts on aftermarket. In the second quarter of 2025, the Inter Cars group once again increased its market share and recorded sales of PLN 5.3 billion. This represents a 9.5% increase in sales compared to the second quarter 2024. The aftermarket sector in United States, the same in Europe, still is in the phase that demand is lower than the supply. We still observe price inflation due to the situation on the production level still the production is limited and the parts producers, which are called Tier 1 suppliers to the OEMs, they are facing big problems. The first connected with the changing of the technology of the big investments and then the order lines, which are not connected with these investments and as well turn back to the technology, which was for many years with us, the combustion engine. Even if we look at the sales of the new cars, the dynamic of the cars, the new one is much more connected with the hybrid and combustion engine than only pure EV cars, only the markets like Norway and China showing demand for the EV cars based on the infrastructure and as well as the support of the government. If we look for the demand, especially on the places where the Inter Cars distribution is taking care about the customers. Of course, still we are facing the time of uncertainty based on this, what we see on the Ukraine. In United States or in West Europe as well, everything is connected based as well on the topics according the custom duties between United States and different part of the world. If we look for example, on the tire market, exactly this market, which is one of the simple for the description in the past, we sold 2 tires per car. Nowadays it's 1 tire per car, something which as well is connected to this that the people invested big amount of demand in last 5 years after the COVID time. Everybody wanted to have the car, which is safe and where they can, based on the case, can go from one point to another point. If we look for the environment, we believe that this environment still as aftermarket will stay as -- I see some...

Please mute your microphone.

I did it.

Okay. Perfect. Still it's like a safe harbor. We believe that it will be similar on the next quarters and the process of the changing the markets in one body and as well with less players would be something as a natural goal. If we look for the average growth, we see that in United States, it's not higher than 5% for the players with the biggest growth. In Europe, we see most of the players on the negative or on the 0. Inter Cars is growing on this comparison much more above for half of the year. If we look at the Inter Cars growth is 11.5% for second quarter, 10.3% for half year. Still, we see our place to increase our market share. We believe that for the big companies above EUR 1 billion, we really generate big value for the customers. If we compare as well to the Western European players, always is the question why we grow much faster and why they not succeeded in Central and Eastern Europe. We are sure that our strategy based on the delivery to the point of fixing is the answer. Our market share in the independent garages fleets and dealers is around 74%. Many players in many countries, this rate is below 50%. The best are around 60%. If we look for Polish distributors, they have spot business around 50% to the Western market, which means that even if they sell a lot on the Polish market to the garage; on the end, the stake is limited. We see that our long-term growth and market consolidation is effective, is in comparison to the merger and the acquisition. We see our strategy is valid. And it's not only valid for the customers, which understand this concept because if you calculate the prices together with add value service, we have the best and the cheapest service. And we are as well the most lean player in the delivery of the goods for our suppliers. Our investments with automatization and digitalization even more in the next quarters will improve our situation and we can come back on the path with the profitability as we expected. Import of the cars, for example, for Polish markets going down. But in place of this, we see the sale of the new cars and as well a lot of the cheap brands, which as well exchange the older car to a little bit newer ones, but still the car aging is growing. And we see as well that the car park is growing, which is as well something, which support our future and as well giving us knowledge that our investments are on the right process and based on the right assumptions. Currently, electric vehicles is only 2% of the entire vehicle fleet. And we believe that this -- what we predicted that up to 2030 will be safe harbor as a combustion engine. We believe that the hybrids, even if we check the sales of the Chinese brands in Europe, the domination is based on the hybrid solution, which means with the combustion engine. And up to 2035, we believe that this will be dominant support supply of the car. And this is giving as well as the possibility that we can think on a bright way the demand, which is still not visible on a short period will come and big demand can only be used by the big players because they have the right logistics to solve it and giving as well additional value on the margin or on the profitability.

Now it's time for the comments on the financial results. This is Piotr Zamora speaking. Good afternoon. In the second quarter of 2025, Inter Cars group revenue reached the level of PLN 5.3 billion, representing an increase of 9.5%; however, in the first half of 2025, revenues reached the level of slightly above PLN 10 billion, representing an increase of 7.6%. When we compare it to the sales dynamic measured in units, after the first 2 quarters of 2025, the group achieved sales growth in units of around 11.4%. This difference between 11.4% in units versus 7.6% in nominal terms shows more or less what kind of price competition we had to face in the first half of 2025. The share of domestic sales continues to decline -- I mean, domestic and in Poland continues to decline compared to higher growth of sales of our foreign distribution companies. In the first half of 2025, Inter Cars revenue in Poland from domestic market accounted for approximately 39% of sales compared to 40%, which on one side shows that the group is further diversifying geographically. On the other hand, it's showing that the growth rate of our distribution companies outside of Poland is higher coming from generally lower market share on many of the markets and also because of the implementation of our strategies in various segments, which allows those companies to grow faster. Over the last 6 months, we opened 19 new branches abroad, and we closed 3 branches in Poland. At the end of June, we had 670 branches. In our opinion, Inter Cars group's ability to maintain higher sales growth, which was commented by Krzysztof versus competitors was of particular importance for our results and was possible, thanks to 2 -- we would like to distinguish 2 factors, one being full [ computation ] of spare parts for a given vehicle type. It is worth noting that many of our competitors specialize in certain suppliers or in product groups, while Inter Cars provides outstanding service for the workshops in terms of the offer, which outperforms the market and drives our sales. The second factor would be the distribution network of 670 branches and efficient logistics. Regarding gross margin, the consolidated first quarter -- second quarter 2025 gross margin decreased to 28.4% compared to 30% after eliminating the impact of exchange differences. When comparing half year to half year, gross margin decreased slightly, only slightly, from 28.9% down to -- sorry, from 29.2% down to 28.9%. The key factor negatively impacting the first quarter gross margin was primarily the need to adjust the selling prices to market conditions on selected product groups due to increased competition and weaker-than-expected demand for spare parts. Furthermore, in quarter 2 2025, we faced price reductions from various suppliers, which also translated into downward pressure on prices. However, at the end of quarter 2 2025, we began the process of increasing gross margins. The process was continued throughout quarter 3. And what is worth noting that the gross margin increases did not affect negatively our sales growth, which you can see in our monthly reports regarding sales growth in January -- in July and September. Regarding the cost, the share of selling, general and administrative costs to sales revenue for the second quarter of 2025 was 13.8% which is a decrease, an improvement compared to the same period of the last year when it was 14.4%. The improvement in this ratio is due to the actions taken by Inter Cars' management in recent months, including a number of cost optimizations and reductions, particularly in the area of IT and logistics and is also related to the implementation of robots in Zakroczym in the first phase of the entire robotization process. The improvement in the cost to sales ratio was the key to achieving a 3% improvement in operating profit in quarter 2 2025. It is also worth noting that there was an increase in financial cost in quarter 2. The financial cost amounted to PLN 54 million compared to around PLN 42 million for the same period of quarter 2 2024, which is primarily due to increased scale of investment while maintaining the turnover inventory rotation, more or less on the same ratio. Regarding the net profit, the group achieved a net profit of PLN 188 million, which is basically on the similar level to previous year, which, in our opinion, is a good result considering the price pressures and the decline in the first -- in the gross margin. Regarding the inventory rotation, as it was mentioned earlier, the inventory rotation remained on a similar level as in prior year, which is 143 days. And now I would like to make some 2 additional comments regarding one-off events. On September 5, 2025, Inter Cars' management received information about the fire, which has destroyed the Inter Cars Ukraine warehouse located in [indiscernible]. After determining the cause of the fire and estimating the value of destroyed goods and fixed assets, we will recognize the impairment loss in the third quarter of 2025. The initial estimated losses amounted to around PLN 21 million. And the second one-off event, which is a positive one. On the 2nd of July 2025, the provincial administrative court in issued a judgment in case of the -- concerning our subsidiary Lauber. The other concerned irregularities in waste management, in particular, the classification of used parts course undergoing the remanufacturing process. The court decision, as I said, is positive for us. Generally, the court indicated that the remanufacturing process could be classified as a reuse, not recovery, which would preclude automatic recognition of this part of waste. So we can say that this court judgment actually closes the case, which is very positive for us, and Lauder will be able to continue its operation. So I think this is all from my side. And I will pass the voice now to Krzysztof. Thank you.

Okay. We are the fastest-growing distributor among the largest players on the market despite weakening demand in Europe. In comparison for the half year, 10.3% of the growth; LKQ, minus 6.4%, GPC, around 0.6%; MEKO, 4.1%, including the merger of Elit Poland and total, these biggest players around 0.9%. We believe that still the independent aftermarket is the safe harbor. The vehicle parts distribution and repair market is undergoing consolidation. And in the near future, we can expect smaller players to gradually lose importance, with Inter Cars remaining the growth leader among large distributors. We are open to the changing environment, technologies and the social and geopolitical challenges facing the world today. Thanks to our internal culture focus on development, we are ready to further expansion, setting increasingly higher standards of customer service. We expect an improvement in sales dynamics in the coming -- in the coming quarters of 2025 due to expected competition of postponed repairs by the drivers. We see the potential for further growth in 2025 in the aftermarket, still is a solid foundation, the vehicle fleet in the past. The aftermarket has proven to be strong even during economic downturns. The uncertainty that exists in the market is paradoxically good news for us as such a situation may lead to further market consolidation and the expense of less agile players. Furthermore, the growing pressure to improve efficiency and effectiveness resulting from rising operating costs may contribute to faster market consolidation and Inter Cars is a leader in the area, thanks to the robotization of the process and as well as digitalization, what we mentioned, especially that our main customer, as we mentioned, is the point of fixing the garage. And we believe that this unbeatable offer, lean offer, for the producers to go to this last mile and as well best solution, how to repair cars, especially that we see that is lack of the people. And as well, we have the new narrative, which we as well present in September is regarding the powering progress and saving time is exactly connected with the garage and the last mile. We currently operate in 21 markets, but we are still developing our logistics network. We recently opened a new fully robotic warehouse in Zakroczym scheduled for early 2025. And robotics is now a necessity. We already know how to achieve this using existing model technologies. The robotization of another warehouse in Brasov is nearing competition at the end of the September with the investments completed, including 100% transition to the new warehouse and the termination of the lease agreement for the old warehouse. Our logistics footprint currently covers 660,000 square meters, 670 branches, ensuring we are close to customers as possible and able to deliver goods to the workshop multiple times, as I mentioned before, as a leading company on the last mile. And thanks to our network, especially based on this, we could say, solution one-stop shop, we are present in Central Eastern Europe, but as well, we're going more and more on the West. And we believe that based on this, we will expand and build the franchise model system, not only on existing markets, but as well on the new one like Austria and Germany. Thank you very much, and we ask for the questions.

[Operator Instructions]

Are there any questions?

Yes, from Mr. [indiscernible].

I would like to inform you in the meantime that the presentation was uploaded to our new website, so you can take it from our investor website.

About the Germany, as we discussed before, the first stage was to onboard the customers, which -- bought from Poland directly to IT solution in Germany. This phase is like on finishing. Now it's making the relation with the customers in each town, in each land. And then based on the knowledge of our team, it will be the proposal of the converting them to the franchise partner. Nowadays, it's not yet as a step. We need to remember that in Poland, it took us 10 years from changing from the distributors to the franchiser partners in Greece 5 years, which I believe that we will see how fast we can do this in Germany. But as Piotr mentioned as well that we develop our logistics network. Next year, we will start to development of the new warehouse near the border of Germany. And it is as well the part of our plan for supporting the customers in the first phase. And the second phase, of course, is the opening the first branches. Then based on the number of the branches when we will be satisfied and the partners will be satisfied is building the local warehouse than the warehouse similar as we have in Zakroczym or Sosnowiec or, in the future, near the [ POS line, ] which means that we have the plan, but as well something, which we use always as a phrase, everyday small spoon. We have quite nice growth to the Western markets, and we believe that -- it's not only based on the offer, but as well about the next stage as well. This what we can deliver to the last mile exactly to the need of the garage. Any more questions.

Thank you for the questions. So if there are no more questions, I would like to remind you that our recording from this teleconference will be uploaded to our website and see you after the third quarter results. Thank you very much.

Yes, thank you very much. We would like to invite you to the next conference. Thank you for your time and for listening to us.

Thank you very much, and see you next time. Goodbye.

Goodbye.