Kamux Oyj (KAMUX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Kamux annual results presentation 2020. My name is Juha Kalliokoski. I'm CEO and founder of Kamux.

Good morning. My name is Marko Lehtonen, and I am Kamux CFO.

First, we take Q4 in brief and overview 2020 results. After that financial development. Then, we look our outlook and financial targets, and then we summarize these. This slide tell strongly our vision that we want to be #1 used car retail in Europe. And as we know, we announced -- published today morning, our new strategy. And next Wednesday, we tell up more in this Capital Market Day. Despite contribution in Germany and Sweden, our internal growth was strong. We grew in Sweden, over 40%. And in Germany, 24.5%. Our total revenue increased 13.3% and achieved EUR 198.8 million. And our gross profit increased 18.7% and adjusted operating profit, 38.8% to EUR 7.5 million. And it's very nice period as we compare our revenue increase and adjusted operating profit because it's near 3x bigger growth in operating profit compared to revenue. Like-for-like sales was impacted by corona pandemic, and it was minus 1.6%. And also, 2019, our like-for-like grew was 14.6%, and this result was very strong behind Q4. We -- and in Germany, middle of December, our stores put a lockdown mode. And now, we are at 15 of March this stores are locked out mode. If we compare new car sales and used car sales, the European region of new car sales decreased last year, 23.7%. And in these markets where we are in Germany, Finland and Sweden, it's slightly increased. And it tells that we are in different business if we compare new car business and used car sales. In Finland, Q4 growth was line in the market growth. In Germany and Sweden, we grew very much faster than the market. And there is diagram from the revenue growth, 13.3% in Q3 -- Q4, and operating profit, 38.8% to EUR 7.5 million. And we sold 15,733 cars in Q4, and it was 9.3% more if we compare Q4 '19. And it means that average price was a little bit higher in Q4 than the previous year. Integrated services revenue grew, and it was EUR 10.2 million, 5.1% from the revenue. And international growth has been stronger than in Finland. And the revenue from integrated services is relatively lower. We do not yet similar condition in finance and insurance agreements abroad. And this was the reason why it was not a stronger percentage of revenue. And then 2020 whole year. I'm CEO and I can say that whoa, it is a strong message that our concept works even despite this corona pandemic. Our revenue increased 10% to EUR 724 million and asset operating profit increased by 20.8% to EUR 30.7 million. And it's a nice curve if you combine revenue and operating profit. And even we remember that this year was very, very hard, and many thanks to our customers and all the staff that we have -- employees that we have. You made great job. Kamux flexibility and strongly digital business model helped to carry throughout the year, which was strongly colored by corona pandemic. Our international growth was very strong in Sweden and Germany. And also, as I mentioned, that operating profit increase was very strong. We opened 7 stores as we planned last year, and our like-for-like revenue declined 3.8%. And we put this year effort to like-for-like showroom growth. But of course, we must remember that we have lockdown mode 2x in Germany and also in Sweden and Finland, not so normal market situation. And then, if we compare at the end of 2016, we have -- we had about EUR 400 million revenue. And last 4 years, we grew about 80% of our revenue and also adjusted operating profit from 17-point-something million euros to over EUR 30 million. And many times, investors and also the management team, focus a lot of the short term, but it's nice to see that we are a company which can grow in many different situations for what the market have. As I mentioned, the average price rose slightly in 2020. And we sold first time over 60,000 cars, 45,000 in Finland, over 10,000 in Sweden, and near 5,000 in Germany. And the whole year, integrated services revenue was EUR 38.1 million, 5.1% of revenue. And if we compare, for example, 4 years back, it's about double the integrated services revenue, what we had last year. Also, when we grew faster abroad until we -- integrated services rose real slightly compared to previous year because we don't have so good agreements what we have and this volume of what we have in Finland. We opened 2 stores in Finland, Espoo Niittykumpu in January, Tornio in May. And Sweden, 3 stores, Sundsvall, Stockholm, and Varmdo, all Q2. And Germany, in Kaltenkirchen and Lubeck. And we announced Gothenburg in Sweden. We open in May this year. Now, we have together stores of Finland, 50, Sweden, 20, and Germany, 8; together 78 stores. Kamux started home deliveries since 2005. And last year, it was -- this gross sales and home delivery was 36% in Finland and 31% in the group. And this digital buying process, cross-selling, and home deliveries were highlighted in 2020. And it's very important that we have this kind of model because, for example, COVID time, if it works very well. We have over 900,000 monthly website visits on Kamux or websites, FI, SE, and BI. And then Marko, here you are. You can tell our financial development.

Thank you, Juha. In the fourth quarter and also in the second half of the year, it was very visible in our return on equity and in our equity ratio that we had a strong profitable growth. Return on equity was 26.3%, and it increased from the previous year. And equity ratio was 50.1%, slightly increased during the fourth quarter compared to the quarter 3 and of course, also compared to the last year. And we paid at the end of the December back the revolving credit facility, but we have to bear in mind that we took the revolving credit facility at the end of March as a precautionary measure. And of course, if we would see lucrative opportunities for asset purchases. However, as Juha was mentioning, the new car market was -- in Europe, at level minus 23%, over minus 23%. And we had, of course, a very tight purchasing market of the used cars. Therefore, actually, there was a little bit of opposite, that the availability of the used cars have been tight since the second quarter of last year. Therefore, we didn't see really need to have the revolving credit facility anymore. And as everyone knows, now in the negative interest environment, it is relatively expensive to have cash. I'm also very glad to tell that we recognized a deferred tax asset in Sweden at the end of the last year worth roughly EUR 0.8 million. And this is, of course, proof of the right development in our Swedish operations and shows our trust to these operations. The basic earnings per share were $0.13, and it increased 16% from the previous year. And of course, all of that is creating a very solid basis for our new growth strategy. Then if we look at the key figures, I will make some few picks from the figures. And I have to note that the trading environment in overall stayed challenging in the fourth quarter. However, the revenue grew 13.3%. And through the whole year, the growth was 10%. What I'm also pleased is that the gross profit and EBIT, they improved relatively versus the previous year. And also, in the fourth quarter, the like-for-like showrooms sales decline was slowing down, so it was minus 1.6%. And for the whole year being minus 3.8%. As we were preparing to our growth strategy, we increased the stock levels. And despite this increase, the inventory turnover stayed in good levels still being 47.2 days. Then, if we move to our reporting segments. In Finland, very solid performance in the fourth quarter. The revenue increased 7.9% and relative gross margin and relative EBIT margin was increasing. Integrated services revenue was increasing and being 6%, which was a touchdown compared to the previous year. In Finland, the growth was driven by new showrooms. In Sweden, we had a very strong revenue growth in the fourth quarter. And despite sort of increased uncertainty in the Swedish market, we managed to grow significantly. There has been a discussion at the end of last year with the society corona pandemic measures and actions. And then we can see that that was impacting the consumer sentiment, especially in the December. Also, what is, of course, interesting that actually, at the end of last year or in the fourth quarter, the Swedish krona was getting stronger. But in any case, the export of Finland was growing strongly, almost 80% compared to the previous year. And this, of course, impacted relative gross margin negatively. As you can see that the gross margin was 6.7% of the total revenue. Revenue from integrated services grew relatively compared to previous year, being 2.8% from the external revenue. And growth was driven by new showrooms in Sweden. In Germany, we had a very strong revenue growth in the fourth quarter, despite the lockdown, which started 16th of December. And we started the remote selling. Have to note that during the whole fourth quarter, we had a relatively strict restrictions in Germany. Amount of customers were limited in our stores, and we also had to reserve certain space for the customers. And of course, the people have to use masks. However, we can see that despite of this environment, so the revenue increase was strong, 24.5%. And unfortunately, the measures and actions what we're taking there have been impacting our gross margin, which was relatively slightly going down to 8.5% and operating loss, which increased to EUR 0.4 million being, of course, a bit more than last year. Integrated services revenue was increasing and was EUR 0.8 million and 4.1% of the external revenue, also touchdown from the previous year. In Germany, the growth was driven by new showrooms. Then if we look at the inventories and net working capital. So as I was saying, we were starting to prepare for our new growth strategy. So typically, as you can see from the previous year, at the end of the year, the stock has been relatively lower. And typically, in the spring and summer seasons, higher. But now there is a certain step change. Also, what was slightly impacting our net working capital was that Finnish customs was preparing for a new IT system, and they were executing car tax decisions very quickly in December, which, of course, reduced our car tax debt to the government. And then, if we look at the cash flow from the operations, of course, it was very strongly, reflecting our growth orientation there. Cash flow from the operations was positive in the fourth quarter. But as you can see, we invested heavily to increase the stock. We have -- and of course, in this business, it is impossible to grow if you don't have adequate level of stock. We continued the investments in line with our old strategy, but of course, this is not contradicting our new strategy. And of course, in the fourth quarter, our investments were directed mainly to our digital functions, which has been also the case in the earlier quarters. And of course, now, coming forward, there will be other also new focus areas for our investments. But that I will tell slightly later. Then, our dividend proposal. The board of directors will propose at the annual general meeting dividend of $0.24 per share to be distributed for the year 2020. Earnings per share in 2020 were $0.58, and the proposed dividend is 41% of the net profit. And the annual general meeting will be held in April 20, '21 in Helsinki. Then, I will move to the outlook and financial targets. This is now the outlook what we had for 2019 to 2022, and this is now reflecting to the reporting period. As these are, so to say, our old outlook and financial targets, I will not concentrate too much on that anymore, but I just want to note that we were publishing on December 16, a stock exchange release where we specified our outlook for 2020, which was that according to the -- our current best estimate, the company will be able to reach its medium-term targets regarding the operating profit margin, get close or to the targets regarding the revenue growth and that we did. Then, we are moving to the very exciting area, which is our company's strategic focus areas for 2021 and to 2023. We will then discuss this more in-depth and in detail in our Capital Markets Day, but I'm shortly going through the main cornerstones we have here. And if you start with the omnichannel customer experience and services, so we aim at seamless omnichannel services and the best digital purchase path on the market. And our customer proposition is focusing on attractive prices and trust. And we also employ a customer-oriented approach in developing new services. Concrete examples of that will be following next week. Then utilizing data and leading with the knowledge. So with us, data and analytics guide sales, purchasing and pricing, and we also utilize data to developing the customer experience, especially in the online shopping. Efficient processes and scalability. We improved the efficiency of processes and logistics and industrialized them. Also going forward, we will open fewer number but larger new showrooms. And of course, we will also feel -- we will further still develop our car inspection and other procedures related to the cars. The aim of that is that we are continuing to keep our fixed costs low. And the last and very important point is developing the capabilities and continuous learning. To accomplish all of this, what we want to achieve in the strategy period, we need to invest to our employees' capabilities, learning, and what I'm very proud also to inform is that we will hire approximately 1,000 new colleagues in our markets. And of course, we are very proud to offer these employment opportunities. Then I move to our outlook and financial targets '21 to '23. And our financial target setting is based on our strong growth ambitions during the strategy period. And also, we -- our aim is to grow our annually operating adjusted profit. And this growth and scalability will drive this profit increase. So if I go this one by one now through, target revenue growth annually over 20%, 2020, w achieved 10%. Target adjusted operating profit target is to annually increasing. Last year, we had EUR 30.7 million. Adjusted operating profit margin, over 3.5%. Last year, we had 4.2%. Return on equity, over 25% target. Last year, we had 26.3%. Dividend, at least 25% of net profits last year. Proposal from the board of directors is 41%. Have to note here now that the dividend target is very strongly now reflecting our growth ambitions what we published today. We have also heard and listened to our investors carefully. And now, starting 2021, we are publishing outlook for the first time in Kamux Group. And in 2021, Kamux expects the revenue to be between EUR 800 million to EUR 850 million and adjusted operating profit to increase from the previous year level. It is very important to bear in mind that we start to implement our new strategy with the full steam ahead now, but these results will follow along the 3-year strategy period. And of course, also corona pandemic is among us. It has not yet disappeared from the picture. So I will now then summarize this all. In the fourth quarter 2020, our revenue increased by 13.3%, being EUR 198.8 million. Our gross profit increased by 18.7% being EUR 23.8 million. Our adjusted operating profit increased by 38.8% to EUR 7.5 million, and Kamux growth was strong and very profitable despite the exceptional operating environment. Thank you very much for your attention, and we are happy to answer your questions.

How do you explain the difference in integrated services in percentage of sales between Finland and Sweden? And when should we expect integrated services in Sweden at the same level than Finland?

If I start, of course, we must compare the external revenue. And now we tell about the whole revenue what we have in Sweden, and we must take off the sales to Kamux or to Finland. And then we compare what is the integrated, integrated services revenue is higher than this percent is what we have now. But of course, we don't have in the so good agreements in Sweden, just now what we have in Finland. And this is the other reason why the part of the revenue is smaller in Sweden than Finland from integrated services.

Your plan is to hire around 1,000 new employees over the coming 3-year period. It's a very big jump from today's level. How many of them will be new salespeople?

Nowadays, we have about 80% of our employees are purchase and then salespeople, most of our salespeople. And we think that the mix is coming maybe the same. But of course, we need new type of knowledge what we have -- what we need in the company. And maybe we can tell about this also more in the -- next Wednesday when we have the Capital Market Day.

Can we have an idea of the expansion plan for 2021? How many new showroom openings?

We tell when we have signed to papers and when we have tell something about the new openings. Now, we have this Copenhagen in Sweden, what we open in May. As Marko mentioned, that the new showroom that we opened with what we have average nowadays in all countries.

Is the finished margin sustainable 6.7%.

If you think about the year 2020, it was relatively exceptional by all the measures. I don't want to comment going forward specific country level or segment level margins. So our outlook or our financial targets, they are on the group level.

Having a 25% return on equity, why not invest more internally in growth rather than paying a dividend?

This is a very interesting discussion and question. And we have many investors who think or who have opinion that actually we should really not pay dividend. And we have also many investors to whom a dividend is very important. So we try to find a delicate balance there in between. But what I want to outline is that now the new target setting is very much outlining our ambition for the growth.

What do you think like-for-like growth will be in the future after COVID-19?

We didn't say it out, never. But of course, it should be positive. But we tell only that the whole growth [indiscernible] in what we have. And today morning, we told about these targets, and it's included in also like-for-like growth.

A follow-up question to this 1,000 new employees. Should we assume that you will have 1,700 employees at the end of 2023?