Kamux Oyj (KAMUX) Earnings Call Transcript & Summary

Hello. Welcome to Kamux Annual Results Presentation 2019. My name is Juha Kalliokoski, I'm CEO and Founder of Kamux.

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

Okay. And today, table of contents, Q4 and 2019 in brief, financial development, outlook and financial targets, and then we summarize these. Our vision is to be #1 in Europe used car retailer. And this tells to you our competition level, where we want to be. And firstly, I'm very proud about our Q4 results. Our revenue increased 33.8% to EUR 175.4 million, and gross profit increased by 25.6% to EUR 20 million. Adjusted operating profit increased by 22 -- 25.2%. And our internationalization proceeded strongly. Our Sweden revenue increased 63.8%. And in Germany, near 100%, 97.6%. And if I must show 1 figure, which is very, very strong, and it is like-for-like showrooms revenue, and it was 14.6%. And this Q4, we opened only 1 showroom in Halmstad in Sweden. And the market, used car market, it's stable, large and fragmented. And it's very important to remember that it's 2x bigger than the new car market, and there are 4 different types of players in this market. It's consumer to consumer trade business, and it's declined in last many years all the time down and down. And it gives 4 opportunities for us. And there are also small local used car retailers, and they don't have so much power -- positive IT and digitalization, what the bigger players have. There are also new car dealerships with sale of used cars, but there are not, Kamux type of, virtually, other strongly digital international chains on the market specializing in the used cars. And this fragmented tells us all that in Finland, 5 biggest players take about 20%; and in Sweden, about 10%; and Germany, about 2%. And what is Kamux's market position in our markets? The market level in Finland was at the same level than Q4 of 2018. And in Sweden, it increased, the used car market in Sweden. And Germany, it was the previous year level. And whole Europe, the new car sales increased 1.2%. But for example, in Finland, it declined by 5.2%. During 2019, in all these 3 countries, the number of cars kept on increasing. And if we compare the Q4 revenue growth and adjusted operating profit, we see that adjusted operating profit is a little bit under this revenue growth, and there is one reason what we've told, Q4 2018, and after the Q3 2019, that in Q4 2018, there was one -- integrated services was unusually level and unusually high, and this is the reason why there are differences, because the business went very well in both sides. We sold 28.3% more cars during Q4 compared to Q4 of 2018, together 14,395 cars. And integrated services, which is a very stable business for us, is approximately 5% level all these quarters what you see. And then you see that Q4 '18 where it was 6%; and Q4 2017, it was 5.3%; and last year, 5.4%. And this is the, I can say, normal level where we should be in Q4. And still, it's EUR 9.4 million, the integrated services revenue. In 2019, it was very strong growth and internationalization, because now started new decade, and I thought -- I think 10 years back. What happened last 10 years? Our revenue was, at the end of 2009, EUR 38 million, and we have -- we had 26 employees. And if we compare that last year, our revenue was EUR 658 million. It means that last decade, our revenue growth -- grew about 17x. And it means that we have new possibilities because 10 years ago we were very small and in -- only in Finland. And now we have Europe level -- got Europe level business. Our revenue increased EUR 130 million, 24.8%. Gross profit increased 22.8%. And differences between this means that our revenue increased more in Sweden and Finland than in -- Sweden and Germany than in Finland. And this is the reason why the gross margin is a little bit lower level than revenue increasing. Adjusted operating profit increased by 16.1%. And we opened 10 new car showrooms in total; 4 in Finland, 4 in Sweden and 2 in Germany. Internationalization proceeded strongly. In Sweden, we increased 55.5%; and Germany, EUR 73.5 million (sic) [ 73.5% ]. And if we calculate together, it means that our total revenue was about EUR 210 million. And the whole year like-for-like showrooms revenue growth, 6.3%. There is -- 4 years back, how our revenue growth accelerated and same adjusted operating profit, how it went. We see that every year, our revenue grew last 4 years is two numbers growth, and also adjusted operating profit. And what is the reason why the adjusted operating profit doesn't go down? The reason is that our abroad business is bigger now than 2016, and the margin level is not, just now, so high than in Finland, because we need the scale in our business in abroad. We sold 19% cars more last year than 2018. And it means that our average price per car was higher than 2018. Together, over 55,000 cars. Now there is a whole year of integrated services revenue, and it continued to grow in 2019. It was 20 -- 32.9%. It means EUR 5.8 million more than 2018. And when we see the margin level or the integrated percentage from the revenue, it's quite same level of 4.8%, 2016; 5%, 2017; 5.1%, 2018; and 5% in 2019. It's a very stable business for us. Kamux is taking advantage of the digital disruption for the benefit of the customer. We sold last year, cross-selling cars, in Finland, 33%; and in the group, 29%. And what means cross-selling? It means that every single seller can sell all cars, what we have in showrooms -- in our showrooms in Finland and Sweden and Germany. It's cross-selling, the sale of the cars between the stores. We have over 800 (sic) [ 800,000 ] monthly website visits on kamux.fi/se/de. And there's our showrooms today. We opened last year 4 in Finland; Limingantulli, Kajaani and Klaukkala in Q1; and in Forssa, Q2. In Sweden, we opened Q1, Karlskrona and Norrtlje; and Q2, Helsingborg; and Q4, Halmstad. And in Germany, we opened Heide and Stade, Q3. We announced our openings, Tornio, will be opened in April; in Sundsvall at start of summer; and also in Stockholm and Värmdö. And we will open Kaltenkirchen, Q2 also. And we made our first acquisition in -- on January 9th, in this year. And this is -- we handled so that this deal was as same as our new opening showroom and business as usual after that. There was the premises, there was the cars and some employees to us. But we handled so that it was as same as open new showroom. These strong figures tell that we have very efficient stock management, stock -- our stock size and inventory turnover. We had very strong net cash inflow last year. Like-for-like growth was huge. Return on equity is very high level, and it means that we understand our business, what we do, the market dynamics. We execute it very well. Our operations, our sales and purchase teams, management worked very well. And also, in big picture, the digitalization what we have and what we invested in, and also invested just now, it gives the results out. And then, Marko? Here you are.

Thanks, Juha. It is really a pleasure indeed as the CFO to present these kind of numbers what we have produced. Before we jump into spreadsheets to see the financial numbers, I would like to point out maybe a few important figures for the shareholders and how they have developed. I think it's noteworthy that our inventory turnover was reduced rather significantly to 44.5 days. Have to bear in mind that it is calculated from 12 months averages and rolling numbers, so it doesn't react so quickly. So the second thing, I think, what is really good is our earnings per share, was EUR 0.48, which has growth of 29% -- 29.8%. Return on equity was very strong, 25.3%. If I put that very simply, so every euro what the shareholder put into Kamux was basically yielding 25.3%. The profit season in Helsinki Stock Exchange is still open, and I don't know the final figures. But I believe that we are on the upper 20% of the whole Finnish stock exchange with our current return on equity level. And the net cash flow from operating activities was very strong, EUR 33.3 million. I will come back a bit later to that what was behind it. If we look about our key figures, 2019, Juha was mentioning the operating numbers quite thoroughly, so I will not start to repeat them as such. But I think what is really important to note that if we look on the Q4, but also on the whole year level, so the operating leverage was strong, so our EBIT was growing faster on percentage-wise than our revenue was growing. And I think that is very important. The second thing is that we had a very strong equity ratio of 45.1%. It is not comparable to the previous year due to the IFRS 16 implementation. We had roughly EUR 47 million lease depth in our balance sheet, and that makes it not comparable between the years. However, it is still in very strong level, according to my mind. And overall, our financial position was very strong in last year. I think we discussed about the revenue already, and let's go directly to the segment information. So if I start with the Kamux Finland, we had a very strong revenue growth in the Q4. So the revenue was growing 23%. And also, the gross margin was increasing with -- EUR 15.3 million. We had also positive like-for-like showroom sales, which, of course, I'm very happy. And as Juha was mentioning, our margin and also our integrated service revenue was impacted in the comparison period last year, relatively -- or higher than usual finance fees what we received. But overall, we can be satisfied for the Finnish Q4. If we then move to our second segment, Sweden, we had a very strong revenue growth and it was continuing, of course, through the whole year. So in the last quarter, the revenue grew 63.8% and that is also very positive compared to the 2018. So the Q4 loss was now turning into a small profit. So also, our EBIT was developing positively. What we -- what, of course, could have been increasing better is the integrated services revenue in Sweden. We do not have yet same level of contracts and same level of earnings what we had, for example, in Finland. So that we're still expecting to come. And also in Sweden, like-for-like showroom sales increased. Then our third segment, Germany. We had a very strong revenue growth. The revenue was growing 97.6%. And what I'm very pleased is that, in the 2018 Q4, roughly EUR 800,000 loss was reducing into EUR 100,000 loss here. It was practically business as usual. So there was not any, let's say, extraordinary items on that. What we can be also very pleased is with the integrated services development. And I think it's a noteworthy dimension that if we look at the earnings logic and how the fees are coming to us, it differs between the countries. In some countries, we get the contracts -- the revenues from contracts a little bit lagging behind the contracts. In some ways, the earnings curve is a bit earlier, some later. And obviously, in Germany, we are having contracts with some more on the earlier part. So that, of course, helps when the business is growing, also to develop very quickly the integrated services revenue. And also in Germany, like-for-like showroom sales increased. As a CFO, I can be very happy, our capital usage. So even though the business was throwing -- business was growing very strongly, our net working capital actually decreased. That is mainly due to the fact that our inventories were roughly at the same level than the previous year. There is couple of big factors behind that. One is, of course, that we have invested significantly, the digitalization, analytics, so utilization of the data. So that is one thing. And another thing is, of course, very disciplined execution of our concept and especially concentrating on to the stock and inventory turnover. So those are the main key factors there. Of course, when we succeeded well with the inventory management that was producing very strong cash -- operating net cash flow from the operations, and as you can see that it was mainly really coming through the changes on the inventories here. If we then talk about our strategic investments. They were, again, in higher level, as we have been saying before. We are roughly in a year to -- roughly a year going to invest still a bit higher, more to our CRM-ERP systems, digitalization, of course, the international expansion. And if we think about what we really want to achieve there, I think it is culminating into 2 things. One is the seamless integration of supply and demand in European level. What does it mean? Already today, for example, if we have a customer in Finland, he can see in our web page and -- for him or her is available cars from Sweden or Germany. But that is not yet seamless and automated process from our side. So what we want to achieve is that, that is really seamless integration of supply and demand on the European level. The second thing, of course, is that we have a lot of basic automotive processes and we see a lot of benefits when we can automate them, make them more effective going forward. If we then move on to a dividend proposal and annual general meeting. So the Board of Directors will propose a dividend of EUR 0.23 per share. And the proposed dividend is 48% of the net profit from the year 2019. And the annual general meeting will be held on April 21 this year in Helsinki. If we have then a quick look to our outlook and financial targets. If we start with the outlook, Kamux does not publish a shorter outlook. If we look at the financial targets and how we were succeeding in 2019, so one of the target is revenue growth of over 10% in 2019 to 2022. So our revenue in 2019 was growing 24.8%, so we were quite higher than that. Other target is EBIT margin, at least 4%. So here, we were, in 2019, 3.9%, our adjusted operating profit, so we were slightly below there. And third target is to distribute dividends of at least 30% of the net profit. And here, the proposal from the Board of Directors through the annual general meeting is 48% from the net profits. If I now summarize all of this, so revenue increased in the last quarter, last year, 2019, 33.8%; gross profit increased by 25.6%; adjusted operating profit increased 25.2%; and what we can be very pleased is that our like-for-like showroom revenue growth was 14.6%. Thank you. We are very happy to answer your questions.

Operator, do we have any questions in English by phone?