Kamux Oyj (KAMUX) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to Kamux's Annual Results Presentation 2021. My name is Juha Kalliokoski, I'm CEO and founder of Kamux.

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

It's kind of a spring morning. Sun is shining, and we have good results. It's easy to smile and be CEO of the Kamux. Firstly, we'll have Q4 in brief, then we'll be over last year results. Then thirdly, financial development. After that strategy, outlook and financial targets, and then we summarize those. Kamux Vision used to be #1 used car retailer in Europe, and it's unchanged last 5 years. We have now first time to show you 15 biggest used car retailers in Europe. It's good to remember that U.K. is not in Continental Europe, which is our focus market. And many of those companies are U.K. companies. If considering pure player used car retailers, Kamux is currently third largest dealer in Europe after Constallation Group and Aures Holdings. This means our vision is very realistic. And then, our revenue increased 22.8% in Q4, EUR 244.1 million, and our gross profit increased by 20.1% to EUR 28.6 million. Adjusted operating profit increased by 19% and was EUR 9 million, and a year ago, EUR 7.5 million. Like-for-like showroom revenue increased by 16%, and it's a huge number if we think that we are a retailer. I'm very happy about our internationalization, how it has progressed. And the total revenue increased in Sweden by 23.9%, EUR 77.1 million; and in Germany, by 31.4% to EUR 26.4 million. I'm extremely happy about our German results. It was EUR 0.3 million profit in Q4, and it's amazing job by our German team. Thank you very much. We continued our very strong growth and increased both gross profit and adjusted operating profit. It's good to remember what kind of situation we have had in Q4. If you think about COVID-19, for example, in December, we calculated that we had nearly 100 people on sick leave on some days together in all 3 countries and especially in German situation and Marko would speak more about that. Then about the used car market. The market was very challenging, especially in Sweden and in Germany. New car deliveries were still below 2019 levels, and this can be seen with purchase market. Purchase market continued to be tight due to weakness of the new car deliveries. Kamux is now -- In Sweden, Kamux is now among fifth biggest used car dealers, and our position improved from the previous year. It's a very important step for us that now we are top 5 player in Sweden. Q4, we continued growing trend with revenue and with adjusted operating profit. We also returned into positive trend. Operating profit increased 19% and revenue 23.8%. As we see that average sales prices were still growing. We sold 6.3% more car units. And when we compare the revenue, it means that average prices grew about 16%. We sold together 16,700 cars in all countries. And in Finland, a little bit less than 12,000 cars; in Sweden, approximately 3,500 cars; and in Germany, 1,400 cars. Integrated services revenue increased in Q4. With integrated services revenue, we succeeded in Q4 and development in Q4 was similar compared to other years. As you see, Q4 '19, Q4 '20, it's over 5% share from the revenue. And it was Q4 last year, EUR 12.9 million, this integrated services revenue. And then 2021 overview. We are extremely happy about the revenue of the company, EUR 937 million last year. And if you compare, think about how much we increased about revenue, EUR 213 million was this growth. And it's more than 2014, the whole year revenue. Our gross profit increased by 10.6%, EUR 101.3 million. And adjusted operating profit increased by 2.3% to EUR 31.4 million. The whole year like-for-like stores revenue increased by 19.1%. And it's a huge number in retail business. Kamux's total revenue increased in Sweden by 37.6% to EUR 296 million. And in Germany, over 47% to EUR 98.6 million. This growth is in line with our strategy. We accelerated our growth and continued our internationalization in 2021. We are very pleased with the growth in 2021, and it was in focus in our new strategy. Faster growth abroad was diluting group relatively adjusted operating profit margin, but adjusted operating profit grew in absolute euros. And as we last year talked about the year, that when we compare, our revenue increased more in Sweden and Germany and we are not so profitable there than in Finland, it means that it's pushing down the EBIT percent margin. But still, it's important that our absolute euros are growing. And there you can see 5 last year figures on the left side. And as we see that every single year we grew 10% to 29.5% in those years, and it tells a strong message from our growth plan and how we do it. We sold last year 12.8% cars more than 2020, together over 68,000 sold pieces. Main driver is car sales price increase, and there is also a shift between the segments in a bit more expensive car, especially hybrid and electric vehicles. We will come back to car margins in the financial part. Integrated services revenue was EUR 42.8 million, and it was 4.6%. Strong growth in absolute euros, but relatively share decreased due to the rising average sales prices. Integrated services revenue grew 15.4%. Finance penetration in Germany was weaker in the first 3 quarters, but slightly improved towards the year-end. It's also important to remember that we have -- this integrated services, there is a part which is fixed. It doesn't matter what is the price of the car. And when the prices are higher, it means that the share is smaller when we compare the cheaper cost. Our openings and showrooms is in line with our new strategy. We published 3 expansions or moving into lateral premises in Finland and 2 new showrooms in Sweden. In Finland, these bigger premises are in Kaarina, in Vantaa Petikko, and in Pori. And new showrooms in Sweden are coming in Malmö and Nyköping. Varkaus store location was not strategic and we transferred the business in the nearby Kuopio and Mikkeli stores. Oulu processing center and megastore has been opened at the end of February. There is a seamless omnichannel customer experience, which would start from the research, how do customers find from our website, transparent prices, search criteria, pictures, product information, similar recommendations, and then make the purchase decision. And we show the videos, presentation, and test driving and deliver the cars at home. And this is possible when we have this KMS. And the big picture is that we can offer 1 European stock in all our countries where we are and also the new services and maybe open the new countries next coming years. And then about the Kamux management team and the main driver for management team renewable and strengthening new strategy and demands it was setting. Compared to the past, we have now strong international orientation when the first time ever we have all country directors in group management team and strong development of purchasing. Logistics and car processing. Here, Juha Saarinen has strong international business experience and process development skills. Jani Koivu's background, who is the Finnish -- in Finland, country director, background is from U.S. companies and also working abroad and strong background from growing of the business. Kerim Nielsen, who is the country director in Sweden, background is strongly about retail and concepts. Martin Verrelli, who is starting as German country director, background is very strongly in the car business and especially in used car business in many countries in Europe, but also in Asia. And Juha Saarinen, I mentioned about his background. And of course, the persons who are many years in the Kamux management team. And then Marko, tell about our financial development.

Thanks, Juha. I will start with a short summary about the issues or figures which I consider very important for our shareholders. And I think it's really important to note that throughout the quarter 4 and the whole fiscal year, the implementation of our growth strategy was processing really strongly. And big projects, for example, what we had was Kamux management system, so KMS, and of course, Oulu megastore and processing center. So Kamux management system is now in use in all countries where we operate. Other issues, which is really important and what I'm really glad about is that when we think about our unit economics and namely, when I talk about the gross profit per car. So the gross profit per car in the last quarter was EUR 1,709 and it grew 13% compared to the previous year. And of course, one main driver there was positive development of integrated services. And if I think about the whole year gross profit per car, and I eliminate there the incident what we had with the German purchases, actually also on the annual level, the gross profit per car was actually increasing a little bit compared to previous year, which I'm very happy about. The return on equity was 19.5%, and it was significantly impacted by the incident in German purchasing, EUR 3.5 million with the net impact. And it is good to keep in mind that, of course, I mean, this amount doesn't impact our adjusted operating profit, but it widely impacts our other key ratios, for example, return on equity or, for example, earnings per share. Equity ratio was 47.3% and it decreased slightly from the previous year, and earnings per share was EUR 0.18, and it grew 38% from the previous year. I still want to underline that the strong balance sheet is the backbone of our growth strategy. Juha was already presenting the most important key figures, and I will make a few notes there or highlights. And of course, it is important to understand and look at our new strategy, the growth, so the revenue growth was in focus, and we were able to deliver it well in the quarter 4 and also the whole fiscal year. So in the quarter 4, our growth was 22.8%, and the whole year growth was 29.5%. Also, our gross profit was growing, respectively, in the quarter for 20.1% and whole year 10.6%. But in this relative gross profit, we can also see that the average sales prices of the cars have been increasing, and that has been slightly impacting that downwards. Operating profit in the last quarter was EUR 9.4 million, and adjusted operating profit was EUR 9 million. The difference there between is that we had a positive impact of EUR 0.4 million, which is related to the German purchase incident, and these cars were there. So the returning part of the VAT was giving that impact to us. Our like-for-like or sales growth for like-for-like showrooms was really strong, 16%, and for the whole year, 19.1%, which is actually the highest numbers what we have in our history as a public listed company. The inventory turnover was 49.3%, and it's slightly increased from the previous year. That was impacted by the relatively tight purchasing market, but the inventory turnover is also one matter, which we will focus more on this year. Then if we go to our segments and start with Finland. So in Finland, we had a really strong last quarter. Also, what we told in the previous releases that we implemented the KMS in the summertime, but now KMS was working fine. So then it impacted the business, and the revenue increased 16.3% compared to the previous year and was EUR 157.8 million. The gross margin compared to the previous year amounted to EUR 21.1 million and was 13.3%, which was also a bit higher than the previous year. Operating profit increased by 23.6% compared to the previous year, and it was EUR 10.1 million or 6.4% of revenue, which was significantly higher than the previous year. Integrated services revenue was developing really well. And especially the finance penetration in Finland was increasing well in the last quarter. And the revenue was increasing to EUR 10.2 million or being 6.5% of the revenue. The growth was driven by the new showrooms and sales growth of like-for-like showrooms. Then if I look at Sweden. So in our Swedish business, we had a strong growth quarter. And of course, we were investing still heavily for the growth. And we have been, since last presentation, announcing new big store openings, namely Malmö and Nyköping. So our total revenue increased 23.9% compared to the previous year and was EUR 77.1 million. And it is also important to note that our external revenue was growing 38.9%. So in our total revenue, we have also including revenue from the internal transactions, meaning to the other Kamux countries, and of course, external revenue is our revenue only from the external customers. Gross profit -- or the gross margin increased to EUR 5 million, being 6.4% of revenue, slightly below previous year and impacted a little bit with the higher sales prices. Operating profit decreased compared to the previous year and was EUR 0.1 million or 0.2% of total revenue. And revenue from the integrated services increased to EUR 1.8 million, being 2.9% of external revenue and slightly above the previous year. And especially in the last quarter, the financing was developing really well. The revenue growth was driven by the new showrooms and the sales growth of the like-for-like showrooms. Then if we go to Germany, where the situation was maybe most specific in the last quarter, and if I reflect myself personally, what was really maybe surprising for me how strongly still the Corona pandemic has been impacting the German society and the German business. And thinking about the actions what the government took in Germany. So in the beginning of December, there was so-called 2G regime coming in, which means that especially the retail stores, you can only access with recovery or full vaccination certificate, which technically, of course, was reducing the floor traffic in all specialty retail stores, including, of course, automotive retail stores as well. Similar actions were also aimed to our personnel, where we had to monitor and also test our personnel. However, we were able to grow strongly in light of Corona and also the growth was profitable. So total revenue increased by 31.4% compared to the previous year and was EUR 26.4 million. Gross margin increased to EUR 2.6 million, being 9.7% of revenue. It is good to remember that this EUR 0.4 million VAT return that is impacting, of course, the gross margin and also operating profit here in the last quarter. Operating income turn is positive compared to the previous year and was EUR 0.7 million or 2.7% of total revenue. And if I take away here this EUR 0.4 million, so still EUR 0.3 million was the underlying positive operating profit in Germany in the last quarter. Integrated services revenue increased and it was EUR 0.9 million or 3.5% of external revenue. And in Germany, with integrated services, there was, in the last quarter, recovery of the finance penetration. And of course, that was impacting positively our business, but also we managed well to achieve our annual financing targets as well. The growth in Germany was driven by new showrooms and sales growth of like-for-like showrooms. We have also received a court decision in Germany related to incident concerning our purchases and that was positive for us. So we still continue the dunning actions related to this case. However, due to the uncertainty of this receivable, we have not posted any positive impact to our P&L or balance sheet about this. Then if I move to our balance sheet side and start with the net working capital and inventories. So both were increasing. And it's good to keep in mind that our purchasing market was still staying tight due to the new car deliveries. And therefore, if you look back, typically, in the quarter 4, the inventory has been relatively lowest or lower compared to the previous quarter. But this year, this normal, let's call it normal, quarter 4 effect didn't happen. And in this market condition, we are also not so capable to quickly adjust the inventory level upwards. And therefore, we started already load to the cars to the inventory for the spring season earlier this time. Due to the situation with the purchasing, there were no pressure with our stock pricing and also our write-offs for the inventory were very small in the quarter 4. It's also good to keep in mind that in the net working capital, it was positively impacted by the Finnish customs system change, which took place first of -- which was taking place in January 2021. And that is, of course, impacting, so that we had an exceptionally high car tax debt in Finland at the end of this year. Then if I look at the net cash flow. So the net cash flow, of course, is strongly reflecting the preparations for the spring season in the tight purchasing market. So the net operating cash flow from the operations was minus EUR 8.3 million. And as I was saying that this cyclicality, which has been in the past years, was not so visible this year. Then if I look at the investments in the quarter 4, our investments were altogether EUR 2.3 million, from where EUR 1.6 million went to the fixed assets, mainly to Oulu investment, and EUR 0.6 million to immaterial assets, which is mainly to our digital projects. Oulu project, so Oulu megastore and processing center are now ready and other new strategic allocation projects we have not published. Then if I go to the dividend proposal. So it is important to keep in mind that our dividend proposal is reflecting strongly our new strategy, which means that we are focusing very carefully our retained earnings to funding the growth of the business. And our aim here is to give at least 25% dividend from the net profit. The Board of Directors proposes a dividend of EUR 0.20 per share to be distributed for the year 2021 in 2 installments. And the first installment would be EUR 0.08 at the end of April and EUR 0.12 at the end of October. And in 2021, earnings per share were EUR 0.49. So the proposed dividend is 41% of the net profit, which is roughly in the same level like previous year. The Annual General Meeting will be held on April 20, 2022. Then if we look to strategy outlook and our outlook. It's important to understand that in strategy period '21 to '23, we see that there is huge market opportunity for us as a strongly digital and international retail chain. So the focus is to accelerate growth and the profitability development will be then built on business growth and scalability during the strategy period. In our strategy, we have the main pylons, which are seamless omnichannel customer experience and services. There we have been working a lot for our customers. We continued the Kamux's Huoleton, so Kamux's carefree pilot for monthly fee-based mobility services. We also made website and mobile optimization during last year, so improving the customer experience. We were also increasing the conversion from the demand to our contact centers. We also renewed the customer surveys, taking also larger portion of the feedback also from the customer who are non-buyers. And we were also improving our seamless omnichannel experience with increasing our chat service. If we look then the utilizing of the data leading with the knowledge. So KMS, of course, was the spearhead project there, and that is now enabling the data-driven pricing, sales, purchasing and better utilization of vehicle data. The third pylon is efficient processes, scalability and store strategy. And there our Oulu megastore and processing center was now finalized. We have announced in Sweden, Malmo and Nyköping. And in Finland, we have also announced 3 locations, which we are either expanding or moving to bigger premises, which are namely Kaarina, Pori, and Vantaa Petikko. And in Varkaus, we moved 1 location, which is not strategic to other nearby locations. The last very important pylon of our strategy is developing the capabilities and continuous learning where we focused now on widespread and manager skills training. So the target group here was very widely our managerial resources or people who are acting as leaders in our business. Financial targets for the period 2021 to 2023 are unchanged. So the target is revenue growth of over 20% annually, annually increasing adjusted EBIT and adjusted EBIT margin over 3.5%, return on equity over 25%, and target to distribute dividends of at least 25% of net profits. So last year, the revenue growth annually was 29.5%, where we clearly overachieved the given target. Adjusted operating profit was EUR 31.4 million, so it was increasing. However, the adjusted operating profit margin was 3.3%, which was slightly below our target. And the return on equity was 19.5%, which was also below our target. And dividend distribution proposal was 41%, which is also above the target. Outlook for the year 2022 in this situation and circumstances is, of course, challenging. But we are expecting our revenue to be at least EUR 1.1 billion and adjusted operating profit to increase from the previous year. And although Kamux business is not exposed immediately to Russia-related risks, Russian military actions in Ukraine have caused significant uncertainty across Europe. And the situation may have an impact on people's consumption behavior and the purchasing process, which may also create uncertainty regarding Kamux's outlook for 2022. And I will now summarize this all. So in the last quarter, revenue increased by 22.8%, being EUR 244.1 million. Gross profit increased by 20.1%, being EUR 28.6 million. Like-for-like showroom -- sorry, adjusted operating profit increased by 19%, and it was EUR 9 million or 3.7% of revenue. Like-for-like showroom revenue increased by 16% and being very strong for the whole year as well. And Kamux's internationalization progressed well, and total revenue increased in Sweden by 23.9% to EUR 77.1 million and in Germany by 31.4% to EUR 26.4 million. And we continued our very strong growth and increased both gross profit and adjusted operating profit. Thank you for your attention, and we are very happy to answer your questions.

Thank you. We will begin by asking from the operator if we have any questions in English by the phone.

[Operator Instructions] At this time, we have no questions over the phone. I will hand back to the speakers for final remarks.

Thank you. You have 6 showrooms and expansion projects underway, compared to 77 in operations. That means roughly 8% expansion of capacity. With a revenue growth target of over 20%, you will then supposedly have to sell many more cars at existing facilities. Can you talk a little about how you will succeed in doing so?

If we think about the growth, the most important denominator is not the amount of stores per se, but of course, the most important denominator is inventory what we have and, of course, our selling personnel. So the amount of selling personnel. And there, of course, our capacity is not at par at the moment.

Why did the share of cars that are sold with insurance in Sweden drop?

We sold a little less than earlier. I don't see big changes. Of course, it earlier was over 90%, but still we are nearby that. And it's important to remember that we don't have same kind of product what we have in Finland and our earnings are very much lower level. And we can't go behind the lower level insurance sales in Q4, and so good profit in Sweden in Q4.

Did the more difficult market for buying used cars from the market have an effect on Kamux’s gross margin and therefore your EBIT? If the situation changes for better, do you see some help from that regarding EBIT growth in the following years?

As we were just telling, so we were actually able to grow our underlying margins and especially, as I was saying that when we eliminate the purchasing incident in Germany. So that was not the problem. But of course, if we look on the relative terms, so the relative gross or profit margin, of course, was not growing in the same level. And I can't really speculate. There's many factors in the market what are impacting the market. So it's difficult. I wouldn't -- I would avoid to draw a clear line on conclusion of that.

Integrated services increased materially in Q4. How much of this was due to extra strong Q4 seasonality and what level of revenues is reasonable to assume for Q1, similar to Q3?

We didn't open up how much they're coming those kickbacks. But if you compare Q4 2019, Q4 2020 and Q4 2021, these are very near after restating about the percentage from the revenue. When you calculate the whole year, the Q4 is typically the best one in every single year.

Saka says they sell more than 33,000 cars in 2021, and that number was more than 25,000 cars in 2020, suggesting more than 30% growth in cars sold in Finland. This compares to only 7% for sold cars in Finland for Kamux 2021. Can you please share your thoughts on your underperformance compared to Saka? And how do you ensure that they do not take away your market opportunity in Finland?

Now it's very important to think about the market and the market consolidation situation. In Finland, 5 biggest players take about 20% from the market; in Sweden, about 10%; and in Germany, about 2%. And there are different players who take the market shares, and we saw and we will see that the biggest ones, they take the biggest market shares and then the smallest player lose the market and also consumer, the consumer businesses are going down. And we see that it's still going down, and it gives possibilities to everyone to growth.

Germany experienced a strong improvement in gross profit per car sold, even when excluding a positive VAT effect. What is the reason for this improvement?

As I've been telling also in the previous presentations, so in our strategic actions, we have a lot of actions which are impacting our gross profit or should improve it. But there is also of course, the gross profit has been in focus in Germany at the end part of the last year and that there was also quite many tactical actions, which we managed to execute well. So those are the main reasons.

And that ends our Q&A session.

Thank you.

Thank you very much, and have a nice afternoon.