Kamux Oyj (KAMUX) Earnings Call Transcript & Summary

Welcome to Kamux Half Year Results Presentation. My name is Juha Kalliokoski. I'm CEO and Founder of the Kamux.

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

In case you are wondering about the sportsman in the picture, this is from a brand advertising campaign we started in Finland in June. The campaign consists of TV and radio advertisement and it focuses on Kamux wide offering of cars that's with different consumer needs. Here is agenda for today's presentation. Our vision is to be #1 on used car retailer in Europe. Our vision to be #1 in Europe is very realistic as we are already the third largest seller of used cars in Europe. The biggest one is Constellation group, then [ Hours Holding ], thirdly, Kamux, fourthly Aramis from France and Autohero from Germany. This table includes European operators that focus on sales of used cars. The figures are from full year 2021. During the second quarter, the effects of the war in Ukraine have become concrete also in our operating countries. The energy crisis, the high cost of fuel and inflation in general are the main reasons affecting the scale of -- the sale of used cars. Despite the challenging market conditions, we succeeded well in increasing our revenue, which is our most important goal. This shows that our omnichannel strategy and concept works also in exceptional circumstances. The development of gross margin looks good due to an exceptional comparison period and Marko will get back to this in his part of the presentation. When it comes to the development of gross margin and adjusted operating profit in Finland and Sweden, we are not satisfied. Our main goal during this strategy period is growth of our international operations. And we have made some progress here. We have also finalized -- no, the Martin Verrelli became as a Country Manager for Germany on July 1. And Jarkko Lehtismäki will begin as Chief Digital Officer on September 1 this year. Our revenue was up EUR 246.8 million and it increased 7.9% in Q2 and gross profit increased by 19.2% to EUR 24.5 million. Like-for-like showrooms revenue grew by 5.5%. And our internal operations grew external revenue in Sweden increased by 6.1% and Germany 1.4%. The market for used cars has traditionally been quite stable even during crisis. The contraction that we have seen this year is stronger than during the COVID crisis in 2020, when the market bounced back quite quickly. This time, we have not seen a recovery yet. And when we think about the figures, we see that Q2 2021 to Q2 2022, it was minus 20.9% decrease to markets in all countries together. And in the COVID-19 times, it was 13.5%. And from last year, no, this was the -- yes, and in last year, country-by-country, in Finland, Q2 '21 to Q2 '22 was minus 12% to market, the whole market and in Sweden, minus 25% and in Germany, minus 21%. It was very hard market for the used cars. During the second quarter, we have increased our market share in all our operating countries. There were several large transactions published within the automotive industry, mainly in sales of new vehicles. As an example, the Swedish Hedin acquired Veljekset Laakkonen and Bavaria Laakkonen, one of the largest car retailer in Finland. Also in Finland, the Vetri Group will enter the stock market via a share transfer deal. In Central Europe, the Swiss Emil Frey Group has acquired 3 units of Stellantis in Czech, Hungary and Slovakia. And Emil Frey is a very big dealer in -- also in Germans market. And new passenger cars registration across the EU fell by 14% this first 6 months in this year. But the big picture for Kamux is to be #1 in the used car market and there is a lot of room to grow. And of course, sometimes just now the market is totally headwind for the market. The increase in revenue is explained by higher average prices of sold cars. The share of EVs and hybrids has grown by 38%. And their average prices are higher. On its own, the growth rate of EV sales is considerably higher. We are not happy with the adjusted operating profit, which reflects the weakness in metal margin. This is due to a mismatch between cars in stock and demand, which have been addressing and will continue to do so. As an independent operator with no tie-ups to specific brands, we are free to adjust our inventory to match the change in demand, both in power sources and specific models. The number of sold cars decreased, but less than the overall market, what I mentioned earlier. So we managed to grow our share. This happened in all our operating countries. We sold 6.4% less cars than comparison period last year. We succeeded well in sales of integrated services. The growth was 29%. So we are quite satisfied with this. We succeeded well in selling both financing services as well as Kamux Plus products. In Finland, particularly with Kamux Plus services performed well as penetration grew from 19% to 28%. In Germany, the financing services penetration grew from 18% to 30%. I would also like to remind you that the income from financing services and Kamux Plus are distributed across the entire contract period. And the total revenue of integrated services was EUR 12.8 million and it was 5.2% from the total revenue. The status of showrooms as of today, we have 78 showrooms across the 3 operating countries. The Malmo showroom in Sweden was opened in May. And we are expecting 2 new openings during the third quarter, as showrooms in Nykoping and Kalmar will be opened in September. Hopefully, we are also able to publish some news about the Germany soon. This concludes my part of the presentation and I hand over to Marko for the financial review.

Thanks, Juha. So we issued yesterday evening a profit warning considering the whole year guidance. And of course, in our business, the summer period is very important, especially the summer months is what we are going at the moment. And when we had the information about the trading and the profitability of the months, we have adjusted also our estimate for the whole year. And therefore, we reduced then the guidance for the rest part of the year concerning the turnover and also the operating profit. I will come back to the exact numbers a bit later in this presentation. As Juha was telling, the environment was extremely challenging at this quarter, second quarter. However, we were able to produce international growth in Sweden and Germany, although the growth percentages were lower than we had usually before. So especially in Sweden and in Germany, the markets were strongly declining, the used car market and that, of course, had impact to us. And there, of course, the centerpiece is the Ukraine war and the impact of Ukraine war, especially on fuel prices, but also energy prices. And for example, in Germany, the gas prices, I'm not talking about the petrol or diesel, but I'm talking the natural gas prices. There have been a lot discussed in the media and what is happening with their pricing. What is positive that our revenue from the integrated services was growing well, 29.4% and there, of course, the finance and Kamux Plus development was very positive and of course, that was across the board, meaning in all markets, which, of course, I'm very satisfied with. I would also like to remind that when we look at the second quarter numbers, the operating profit in the comparison period were burdened by exceptional cost, EUR 3.9 million. So that has to be understood so that in adjusted operating profit that doesn't have an impact. But all the other numbers across the board have been impacted in the comparison period, meaning gross profit, meaning partially costs, meaning, of course, the ratios from the P&L and the balance sheet. Return on equity was 22.2% and that was improving from the previous year. And the equity ratio was 44.5%, also improving from the previous year. And earnings per share was EUR 0.07 and increasing 96.2% from the previous year. I have been always underlining that the strong balance sheet is the backbone of the growth strategy. But it is also very essential for us in these difficult times when there are strong headwinds in the market. Concerning the key figures, I will not repeat every number. But I would like to draw your attention the first half and the second quarter thematics. So you can see that the second quarter was strongly impacted by the Ukrainian war and its impacts. So we can see that the revenue, EUR 246.8 million growth EUR 7.9 million was, of course, slower than the whole first year -- half of the year, where we had EUR 484.1 million and growth was EUR 10.4 million -- 10.4%. I was telling also the thematics about the gross profit. And there, in the comparison period, we had a provision of EUR 3.7 million impacting the number in the second quarter 2021. As we said also in the statement, the gross profit and of course, the profitability was impacted by the car mix and of course, our actions to adjust the stock to really match the customer needs and customer interest at the moment. And of course, when we talk about the metal margin, so meaning, in our language, the margin, pure margin, what we get from the cars, so there we had declines compared to the previous year. Of course, when we look at the gross profit per se as a percentage, that was growing compared to the previous year. And that partially was impacted, of course, the EUR 3.7 million provision in the comparison period. But also this year, the car -- the euros per car has been slightly increasing. But of course, also the average prices have been slightly increasing, what was impacting there. What was also very positive added in the second quarter and in the first half, the integrated services revenue was very strongly growing. So in the second quarter, 29.4% and in the first half, 27.5%, so much faster than in -- than the revenue growth was. Like-for-like growth was also positive. And we can see that the inventory turnover per days were quite strongly impacted by the situation in the market. And of course, also our own adjustment of the market mix can be seen there. And inventory turnover was 55.4 days in this period. Also, of course, the return on equity and equity ratio were in a strong level, as I already mentioned. In our strategy period, we have been underlining the profitable growth. And of course, growth is important. But it's also important for us that we can grow profitable. Then I will go to our segments and start with Finland. So we increased the revenue 9.8% compared to the previous year and it was EUR 156.2 million. The sold units were declining 5.5%. But of course, the average sales prices were raising and that was, of course, driving the revenue up. And this was, of course, coming from the car mix sold, meaning more interest for the electrical cars, EVs and also plug-in hybrids. The car margin, as I was mentioning, was slightly declining. So we got less euros from the metal per car because of these actions, what we did to the stock. And therefore, gross margin decreased to EUR 17.3 million being 11.1% of revenue. And operating profit also similarly decreased by 19.4% compared to the previous year and was EUR 6.7 million. Also in Finland, the inter-credit services revenue increased to EUR 10.5 million, being 6.7% of the revenue. Sweden, we can be very satisfied that in this very difficult market, where the market was contracting 25%, we were able to increase our revenue 10.2% compared to the previous year and it was EUR 82.4 million. Gross margin was at previous year level at EUR 4.9 million or 5.9% of revenue. And operating profit was declining compared to the previous year and was 0, technically speaking, 0, so being 0% of the total revenue. Revenue from the integrated services increased to EUR 1.4 million being 2.2% of external revenue. And of course, in operating profit, we can see the strong impact of the gross margin, what we get from the cars. But of course, we have been also putting strong efforts to growth. And we have been also announcing new openings in the Sweden and we are preparing for those as well. Concerning Germany; in Germany, the situation was quite extraordinary. So the market was declining 21%. And in this market situation, we were -- our total revenue was decreasing 6.5%. But it has to keep in mind that last year, we had exceptionally high share of deliveries to other Kamux countries, so meaning internal sales due to the COVID restrictions in Germany. And therefore, this total revenue was extraordinarily high. But when we look at the external revenue, so the external revenue was increased by 1.4% compared to the previous year. We were able to keep the good margin per cars and of course, increase the integrated service revenue. And therefore, gross margin increased to EUR 2.3 million and the operating income was slightly positive, EUR 0.1 million. I would also like to remind that in Germany, we are investing for the growth also in the future. And as Juha was mentioning, the integrated services revenue and the penetration was very strongly developing in Germany. And what we saw in the German market that in this COVID-19 crisis period, the demand for the financing services was dropping strongly and it was staying for a while quite low. And now in the last 2 quarters, it has been rebounding back strongly. And penetration was now 30%, which is a big growth compared to previous year, 18% penetration. If we look at the net working capital and inventories, we can see that from the CFO perspective, this was, of course, developing into the wrong direction. And there, of course, the situation in the markets was strongly affecting that. We have been further also developing the usage of data, how we guide the purchasing and especially how we guide the purchasing alongside with the demand and that work is going well. But we see that the most wanted cars purchasing market is still strong and very tight. So there are difficulties to get those cars because of the weaknesses in the new car deliveries. And this is especially in the plug-in hybrids. And I would also like to remind that in the comparison period, the net working capital was strongly impacted by the Finnish customs system project, which was delaying their car tax decisions. And that has been now, technically speaking, [indiscernible] away so meaning that that impact for the comparison period will be diminishing in coming quarters. It's challenging situation in the market. And of course, the weakened turnover of the stock has been, of course, seen also in the operating cash flow in the operating activities, which was EUR 3.6 million. And of course, also the cash flow itself, the biggest driver there is the changes in the stock and of course, our stock turnover, how this is developing. Concerning our investments, in the second quarter, we continued our investments for the growth and investments being roughly EUR 0.5 million, where most of the investments, roughly EUR 0.3 million was going into the immaterial investments, meaning digital and then EUR 0.2 million for the stores or developing the store network. We have been strengthening our own digital organization and that can be also seen that the group function cost has been increasing. But also the investment has been declining and meaning that we are currently doing ourselves more in this area. Concerning the dividend from last year, so the Annual General Meeting decided the dividend of EUR 0.20 per share will be paid. And we have now paid the first installment in April, EUR 0.08 and EUR 0.12 will be paid at the end of October. Then I will move to the strategy outlook and financial targets. And in this strategy period, the big focus there is the growth and accelerate the growth. And what we see is that there is still a huge market opportunity for the strong digital and international retail chain. And of course, we see that the profitability development is built on business growth and scalability during the strategy period. With this picture, I would also like to remind that in our strategy, omnichannel customer experience is in the centerpiece. So we believe in a strong digital experience and we are developing it constantly and store operations. Then I would like to recap a few areas of the strategical development and explain what we have been doing in the last quarter with this. If we start with the seamless omnichannel customer experience, this Kamux Plus renewed version has been now taken really well with the customers. And we can see that the penetration in Finland has been improving. We are also listening with very carefully our customers about our web pages and how they feel and how they see our digital environment. And we have got now roughly 660 proposals. And of course, we are making all the time changes based on the customer proposals for this. Concerning data and leading with the knowledge, I would like to remind that the KMS, so Kamux Management System is now implemented in all operating countries. And of course, with this joint platform, it enables the better utilization of data and of course, sharing the stock across the border. This system is tailor-made for us and for the used car business and we are constantly developing this. I was already mention that we have been further now advanced our usage of data, especially in the purchasing activities and to guide the purchasing alongside with the demand. Concerning the efficient processes, scalability and store strategy, we have now communicated and also worked with many projects in Sweden with the store openings and also in Finland, when we have been moving to larger premises in our store operations. Concerning the people operations, we have now launched Kamux Passport program. And this is a program which enables career path in our company internationally inside the group, so meaning people who have relevant skills have also good possibilities to work in other Kamux operations in other countries. And this is, of course, very exciting opportunity for our employees. And we have already first people in this program going to different countries. We have been also put more effort to training. And we have increased the amount of the trainers in the company. Financial targets, financial targets for the strategy period are unchanged. So revenue growth of 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. And if we see now the first half, so the revenue growth has been 10.4%. Adjusted operating profit, EUR 10.2 million compared to previous year EUR 12.4 million. Adjusted operating profit margin 2.1% and return on equity, 22.2% and dividend from the year 2021 was 41%. Then about our outlook for the year 2022, which we updated yesterday. And in 2022, Kamux expects its revenue to be over EUR 1 billion. And we expect adjusted operating profit to be approximately EUR 23 million to EUR 30 million. And although Kamux is not exposed to immediate Russia-related risks, the war in Ukraine and its effects have weakened the consumer confidence. And this has led to a strong contraction in the demand for the used cars in all Kamux operating countries from March 2022 onwards. Now I will then summarize this all, and it is essential to remind that during the second quarter, the effects of the Ukrainian war, the war in Ukraine have really become concrete and they have a big impact to the used car market. And especially the energy crisis, cost of fuel and inflation has been reason, which has been affecting the used cars business. Revenue increased by 7.9% to EUR 246.8 million. Gross profit increased by 19.2% to EUR 24.5 million. Adjusted operating profit decreased and it was EUR 4.5 million or 1.8% of revenue and like-for-like showroom revenue grew by 5.5% and international operations grew external revenue in Sweden increased by 6.1% to EUR 66.4 million and in Germany by 1.4% to EUR 24.2 million. Thank you for your attention. And we are now happy to answer your questions.

[Operator Instructions]

So we are taking first question from the audience here at Sanomatalo.

[ Ussi Goskinen ]. Question related integrated services. What was the reason of a huge growth 29% and is the new level of integrated services durable? Can that last longer?

If I start, this Kamux Plus new model, what we launched this spring or winter, it increased our revenue and also the focus for the sales of the finance in Finland, Sweden and Germany. And as Marko mentioned that also the German market a little bit changed back to the -- also the customer that they need the finance.

Any further questions from the audience here? No. Okay. Then we shall take questions via the chat, which we have a few. Firstly, a question, operating OpEx and the number of employees is up sharply compared to 1 and 2 years ago, while gross profit is growing much slower. What measures will you take to address and reduce OpEx and to increase efficiency? And to continue for how long do you expect the turbulent market to remain before stabilizing and eventually start growing again?

If we start with the anatomy of the crisis, as Juha was showing, the COVID-19 crisis was, let's say, very sharp V. So meaning that the market was declining shortly and recovering very fast. Currently, it's pretty clear that we are not in this V model. This is more like a U model. And where we are in this U, it's difficult to say at this point of time, so nobody can estimate that. And of course, it has impacts to the used car market. So meaning that we are still waiting to see when the recovery there will be coming. I don't want to speculate or estimate when that could be at hand. Of course, when we look our own plans, and of course, when we look our own targets, they were not -- we didn't, of course -- we didn't, of course, expect the war in Ukraine and so on. So meaning, as I was mentioning, for example, in terms of stock, so the stock turnover is impacted there. You could also translate it other way that the stock for those -- that turnover was slightly too high. And as we were saying that we were doing a lot of actions to really adjust the stock. So -- and that was also costing something in the gross profit. So of course, the tactical or operating things and adjustments we are doing on the constant basis and we are on top of that. I don't know if you want to -- yes.

Okay. Next question. How do you see higher interest rates affecting financial services demand and profitability? You had a nice performance there. Are you paying salespeople more relative to integrated services revenue?

If I compare, because my experience is over 25 years from the car business and also used car business, there is many types of crisis in those years. And I don't see or we wait that the consumer needs finance now and also next year and so on. And we don't see any big changes between that.

Thank you. Has the lower market activity meant increased price pressure from competitors?

Not from the competitors, but consumers don't know so well what is the best type of cars or a few type just now to buy. And this is maybe the biggest issue in the market. Do we have some other?

No. And maybe I could shortly add that still, if we look at the purchasing side of the market, we see that that is still especially for these warranted cars that is very tight. And of course, we don't see there any price pressures in the supply side.

And of course, we can say that the focus on low consumption cars, those cars are interested in, it doesn't matter, is it the hybrid or diesel or petrol cars or of course, EVs.

There was actually a question online about the buying market, which is indeed is difficult. There was -- part of the question was about whether it's going to become easier next year. Anything you would like to comment here in terms of anticipation of the buying market.

It very much goes hand-in-hand with the new car deliveries. And no, as we have been seeing in the first half 2022, there was no increase on the supply side, so difficult to say. There are very different expert opinions when the new car deliveries could speed up next year or year after. I cannot know that myself or...

Okay. More questions coming up. The iron margin in Finland was unusually low, while Sweden and Germany were at more satisfying levels. To which extent the Finnish levels were due to diesel costs in the inventory losing value and to which extent, tight competition? How would you describe the competition level at the moment in all markets?

If you think about market-by-market and start from Finland, the market situation, we can say maybe that unchanged. It's the same competitors what we have earlier also. And the big picture is in all countries is the biggest companies take the market share and the small ones and contribute the consumer rate decrease. And this is a longer period if we take a longer period back for now. In Sweden, there is also the same situation than in Finland. There is the same competitors what we saw also. And in Germany, there is also the same situation and biggest companies grow and the smallest ones -- and maybe the biggest loser is or who lose the market share is the middle-size or small branded dealers.

Okay. Initially, you stated that Kamux's goal is to be #1 used car retailer in Europe. Do you think you can achieve that by being present only in 3 European markets? Do you have any medium to long-term plans about further expansion and how to achieve that?

When we published our strategy period, March 2021, we said that '21 to '23, we focus growing in these 3 countries where we are. And after that or at the end of this period, we watch out of those 3 countries. And this is the situation still now. And of course, we want growth of also the other countries than these 3. But what is the timetable? Because in these markets is so much potential for us to grow.