Kamux Oyj (KAMUX) Earnings Call Transcript & Summary

Good morning. Welcome to Kamux quarterly Results Presentation. My name is Juha Kalliokoski. I'm CEO and Founder of Kamux.

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

They were [indiscernible], there is very nice weather, as same as our figures. This presentation, firstly, Q1 in brief. Then we'll check, our financial development, our strategy, outlook and financial targets, and then we summarize these. Our vision is to be #1 used car retailer in Europe. In these 6 areas, what we always tell to investors, if we compare to Q1 2020 and 2021. Last year, January and February, went well, but in March, last 2 weeks, it experienced significant change. And in this year, in Finland and Sweden, the market was quite good. If we think that this -- COVID-19 situation but in Germany, we had lockdown and we're mainly selling remotely, these cars, the whole Q1. Our revenue increased 25.4%, near to EUR 210 million. And of course, we are very, very happy about that and proud about that. And our gross profit increased by 26.9% to EUR 23.2 million. And adjusted operating profit increased by 44% to EUR 5.7 million. Like-for-like revenue increased by 12.8%, and it's very strong figures in this side. Kamux's internationalization progressed and total revenue increased in Sweden by 47.8% at -- over EUR 66 million, and in Germany by 40.3% over EUR 21 million. And especially in Germany, when we think about the situation, what we have had in this Q1, it's very strong growth in Germany. Then the market situations, how the total market worked in these countries. In Finland and Sweden, the market in Finland, slightly increased, but -- and Sweden increased and in Germany declined. And we think about Germany, that the market was declined, and our revenue growth was over 40%, it's very strong growth in this period. Also, in Finland, it was over 20% growth. And if you compare to market situation, and also in Sweden, even the market growth, our growth was nearly 50%. Of course, growth is very, very important for us and also one key point to our strategy to grow faster than earlier, but also that the growth is profitable growth. And it is nice that our figures are -- growth is 25%, and adjusted operating profit over 40%, and it went right way. We sold a little bit more than 2,000 cars more, than a year ago, 16,200 cars and growth per pieces was 14.2%. And as we see that it's a lower number than our revenue growth. And it means that our average price grew over 10%. And this trading environment has nearly returned to normal in Finland and Sweden. Integrated services revenue related development was impacted by increased average sales price because we have many products which are euros or crowns per sold car and went up. Revenue is higher per car, it means that this a smaller part of this revenue, this integrated services. Also in Germany, integrated services revenue was impacted by difficulties with sale or finance-related additional contracts during the lockdown. This is also a very big situation in German's market. But still, if you compare last year, it was EUR 8.9 million revenue from integrated services, and this year in Q1, EUR 9.4 million. We announced last week of our openings in Oulu, which is our new strategy model that we opened this processing center and also a store in Oulu, which Kamux own and it's coming -- we open it start of next year. And it's 4,000 square meters size. And last week, we opened in Gothenburg in Sweden, it's our biggest store ever. And this is to our -- also planned that we don't open so many stores, but these stores that we open are bigger than earlier. Nowadays, we have in Finland, 50 stores, Sweden, 21, and Germany, 8 stores, totaling 79 stores. And then Marko, here you are. Tell about the financial development.

Thanks, Juha. I'm glad to do that. I have to note that the mood in the used car market at the moment, in May, is relatively different compared to last year. So due to the corona pandemic, the situation last year was quite unusual. If we start with the things what I have listed and I think are important for the shareholders, and of course, if we think about our balance sheet and our operating cash flow, so the inventory level is very significant factor. And it's good to keep in mind that we -- when we published our new growth strategy in March. So we have started already to add the level of inventory at the end of Q4 last year, and we have been doing that also now during the quarter 1. And of course, it's impossible to grow in this business if you do not have adequate level of inventory. In any case, even though we have been adding the inventory, the return on equity was 26.5%, and was very strong, and it was growing from the last year. Also, equity ratio was 45.4%, and it improved slightly compared to previous year. After the comparison period, the first installment of the dividend, EUR 0.11 per share was paid at the end of April, and the earnings per share, which was EUR 0.09, it was growing 36.5% from the previous year. And all in all, our strong financial position is giving us a very good foundation for the growth strategy. If we then move on to the key figures. I'm not going to repeat the same figures what Juha just presented, but I will make a few highlights here. And firstly, gross profit being 11% was growing slightly, compared to the previous year. Adjusted operating profit, 2.7% was growing slightly also, compared to previous year. What we can be very satisfied is that the like-for-like growth was 12.8%, very strong development compared to the previous year. And revenue from integrated services was growing compared to the previous year. But as Juha was mentioning, due to the slightly increased average selling price. So relatively compared to revenue, it was a bit smaller compared to previous year. As we were buying and -- buying stock and increasing the stock levels for our most important sales period, which is being the spring and the summer season. So it was also strongly impacting our inventory turnover. So inventory turnover was 54.3 days, and it was increasing compared to the previous year. If we then talk about our business segments and start with Finland. And of course, in Finland, we had a very strong and very profitable growth in the first quarter. It was very strong operating performance there. And especially if we think about the growth and like-for-like growth, it has to be noted that last year, after the comparison period, we opened only 1 store in Tornio in May. So really, growth from the new stores has been relatively limited. In Finland, the revenue increased 20.3%, and gross margin was increased to EUR 18.5 million, being 20 -- 12.6% of revenue, and operating profit increased 42.1%, being EUR 8.3 million. Integrated services revenue increased to EUR 8.2 million, being 5.6% of revenue, which was slightly smaller compared to the previous year. In Sweden, we had a very strong revenue growth in the first quarter. We have been growing 47.8%, and the gross margin increased to EUR 3.8 million. However, we were significantly putting effort and investment to the growth, but we were not also happy for the margin level and also for the operating profit. Margin levels were slightly impacted by increased sales between the group companies, but still also operatively, we were not fully satisfied for the profitability level in Sweden. In Sweden, the growth was also driven by the new showrooms and, of course, like-for-like growth. I would also like to note that in Sweden, Tommi Iiskonmäki, who is very experienced and seasoned Kamux leader, started as a country manager, starting 1st of March. I'm confident that he will deliver well in Sweden. Germany. The story in Germany is relatively different compared to the other markets. We had a very strong revenue growth despite the lockdown but however, in the lockdown, we -- in the lockdown situation when we had to sell only remotely, we were keeping the inventory turning, which means that we lost some in the margin. And if we look that the total revenue increased 40.3%, but the gross margin was EUR 0.9 million, which was basically in the last year level. Operating loss increased and was EUR 1 million. We had also in the first quarter, constantly part of our people in the German's Kurzarbeit, so to say, a temporary lay off model. In Germany, the integrated services revenue declined. And as Juha was mentioning, very important part of that revenue is that we are selling additional contracts and services, which are related to the financial contracts and in this remote selling environment that was then deemed difficult. And then, of course, that result we can see here. In Germany, the revenue growth was driven by the new showrooms. If we then start to put more the eyes into the balance sheet and the cash flow side, so we invested in the purchasing and raised inventory levels according to our updated growth strategy. And our net working capital was growing 57.2%, and the inventory is growing 57.6%, being roughly EUR 122 million. The growth here looks relatively significant, but have to keep in mind that the last year, end of March, the mood was very, very different. And of course, also the trading environment was very, very different. That is, of course, partially impacting this change here. Of course, when we have been growing the inventory, it has, for that period, a significant impact, other than cash flow from the operations. And especially when we started to increase the inventory in Q4 and continued in Q1 so this, so to say, step change has been impacting the cash flow and being now minus EUR 13 million in the first quarter. Of course, that impacted to our cash situation, but we still had roughly EUR 15 million, short-term credit limits, not used. So I'm not personally concerned about the situation. Our cash situation is very good. If we then go to the investments, according to our new strategy, we have been continuing to invest in knowledge management, which means our digital systems and functions. And investments in the first quarter was roughly EUR 1.2 million. So not a big change for our investment profile as compared to before. And we also published, after the first quarter, our investment in Oulu, for the new bigger store and the processing center, which will happen during this year. We have been also in the group functions, centralizing resources and people, more to the center, which are serving or which are developing systems or processes for the whole group benefit and for the whole group usage. And this is, of course, also according and along with the new strategy we published. It is good to still repeat and memorize why we are doing this. And the targets here are really to create the best online customer journey and improve and streamline our core processes. We have roughly over 900,000 direct visits to our own websites in Finland, Sweden and Germany. And if we think about the cross-selling or click-and-collect, as we speak about that, it was now in the period, 36% in Finland and 31% in the group, where we can see also some growth compared to last year. In the Finland, last year was 33%, and in the group, 29%. So this cross-selling or click-and-collect, has also developed positively during this period. I will now move to the strategy and outlook and our financial targets. We have been relatively busy, implementing our new strategy, and I'm very pleased to tell you quite about -- quite many developments we have. If we start with the omnichannel customer experience and services, we launched a pilot in Finland for Kamux Huoleton. If I would translate it, it would mean Kamux carefree and that is a monthly-fee driving service as a pilot. If I look at the effys and processes and scalability. So we opened last week a megastore in Gothenburg, as Juha was mentioning, the biggest ever we have. And also, we published the strategic property investments in Oulu. About utilizing data and leading with the knowledge, Kamux Management System, so meaning our own sales and CRM system. It's in use in Germany, and we will gradually implement it during this year for the whole group. And about developing capabilities and continuous learning, the focus is now in the leadership and supervisory skills, trading and development. Let's then go through, once more, our financial targets. The targets being revenue growth over 20% annually, annually increasing adjusted EBIT and adjusted EBIT margin over 3.5%. Return on equity over 25% and target to distribute dividends at least 25% of net profits. And the targets, of course, are in line with our new growth strategy. And I think the biggest change compared to previous is really about the dividends, where we are now channeling more net profits, the company growth and investments, what is needed to grow. And if we look on the past, so we can see that the dividends have been, of course, growing very strongly. But of course, now we are assessing the situation carefully and looking what investment and what capital we need for our growth. Now I will then summarize this all. In quarter 1, revenue increased by 25.4% to EUR 209.9 million. Gross profit increased by 26.9% to EUR 23.2 million. Adjusted operating profit increased by 44% to EUR 5.7 million. Like-for-like showroom revenue increased by 12.8%, and Kamux internationalization progressed and total revenue increased in Sweden by 47.8%, and in Germany, 40.3%. In Finland and Sweden, all stores were open. In Germany, the lockdown continued in January to March, and car sales were mainly remote selling. Thank you for your attention, and we are very happy to answer your questions.

Congrats on the strong quarter. In recent quarters, you have mentioned challenges in purchasing inventory. Was the tailwinds from the strength in the new cars market enough for you to be able to increase inventory? Or did you have to compromise on purchase prices?

It is very positive that there was a slight growth in the new car market. And we think that is very natural and positive development. However, I think as we have discussed and also described before, that we are always looking at the current situation that what are the currently market prices to buy and to sell the cars. And we have, of course, own demands for that. And when we launched the new strategy in Capital Markets Day, we also said that the target is not -- or our aim is not to grow by slashing the margins.

Operator. We are ready to take questions.

[Operator Instructions] Our first question comes from Maria Wikstrom from Danske Bank.

I try to ask in this English-speaking conference now instead, I still had some questions left. One is on the competition situation in Finland. Obviously, like one of the -- your competitors, Saka has been growing, I mean, very fast as well. I mean, so have you as well. But how would you describe the competition situation currently in Finland, in used car retail, please?

The big picture. We are happy that we have competitors in all countries. And it tells also that the Kamux has made many things so that this is the very interesting part of our car business, this used car business. And it means that the biggest player, take the market share from the smallest one. And also, it tells that consumer-to-consumer trade went all the time down. And it means that we must be better than other competitors that we can take the market share. And as we saw it in for Q1 that we can do that. But I think that in the whole used car business, it's good that there are many strong players in the market.

Okay. And then maybe one more on the ancillary services and the profitability of those. I think we talked about for some time that I mean given the profitability it's not as good in Sweden, for example, that it is in Finland that it improves with scale, and you would perhaps think about, I mean, pooling the volumes to getting better terms with your finance partners. Do we have like any update on these ancillary services. And I mean, how -- where you are in terms of raising the profitability in Sweden and Germany and maybe coming up with new products, which could have about better profitability.

Thanks, Maria. In -- with the integrated services and finance and insurance. So we look at the contracts annually and compete them on the market annually. And then, of course, so to say, we use those services. If thinking about the first quarter, our penetration rates actually were I would say, good. So no big changes compared to the past or than the previous periods. But as I was saying, there was relatively big challenges in Germany to sell additional contracts or services related to the finance contracts, and that can be, of course, seen in our revenue. And then if we look on Finland or Sweden, we can see that when our average price has been increasing, so meaning that the revenue is increasing. In those contracts, there are components, which are more transactional [indiscernible] based, not so much for the selling price necessarily and that is, of course, impacting that volume was in the quarter 1, growing less, but there is not like changes in the conditions or so.

Okay, that's then with the phone questions. And then we have a couple more. Inventory turnover decreased in the quarter, days went up. So do you expect turnover to grow in the future? Do you have a target level?

We are happy between 40 days should be in the [indiscernible], between 40 to 50 days. And of course, it's better if we are near the 40 days. But as Marko mentioned, that just now was the time when we increased our inventory. And if we think that the biggest part of that came in, in March. And it means that we don't -- we didn't sell these cars out and inventory growth -- inventory grew but without sales, and it means that inventory turnover went wrong way. But this is very important KPI for us, and we are carefully about that. And if we compare back a year, Q1 -- at the end of Q1, there was COVID situation in. And we sold Heide to cash out and take the cash in. And now it's the other type of situation in the market and how we approach this 2021 spring and summer.

Good job with the growth. Related to operating profits. Could you explain why operating profits have declined in Germany? And what you expect in the future in terms of operating profits?

Let's start with the expectations. We have been telling in March, our financial targets, being on the group level, 3.5%. We have not published a target level for the countries, individually. And as I was describing, but maybe I will do it a bit more deeper. So the trading and business environment in Germany in the first quarter was very difficult. So we had a lockdown. So meaning the stores were mainly closed, and we were mainly selling remotely the cars, which, of course, had a quite significant difficulties for our trading and a normal business operation. We had also people in temporary layoff or as the German Kurzarbeit. So we had possibilities maybe to save there some cost. But of course, it doesn't offset those difficulties with closing of the stores had there.

And that finishes our questions in English.

Thank you.

Thank you very much, and have a nice spring.