Kamux Oyj (KAMUX) Earnings Call Transcript & Summary

Hello. Welcome to Kamux Q1 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.

As usual, I will present the overview and Marko will then present more details on the final sales as well as on our country-by-country performance. Here is our agenda for today's presentation. Q1 in brief, financial development, strategy, outlook and financial targets, and then we summarize those. We continue working towards our vision to be the #1 used car retailer in Europe. The vision itself is unchanged. The first quarter of 2023 was difficult, even though the market started to recover. Prices for used cars decreased in January to February, especially in Finland and Sweden, and then increased slightly in March. There are 2 separate things to note. At the turn of the year, we made necessary write-offs for cars in stock which we would have made losses. But as prices fell, the rest of the inventory did not deliver the expected margin either. However, the situation has improved month-by-month during the first quarter. Our revenue decreased by 6% to EUR 223.1 million, and last year, it was EUR 237.3 million. Our gross profit decreased by 14.5% to EUR 20.7 million. Our adjusted operating profit decreased by 85.4% to EUR 0.8 million. This corresponds to 0.4% of revenue. The like-for-like showrooms revenue decreased by 10.4%. Sales of integrated services developed in line with revenue and revenue from integrated services was EUR 11.5 million, corresponding to 5.2% of total revenue. Overall, the market for used cars seems to be stabilizing, but the demand in the first quarter was still sluggish, and consumer confidence was weak. Car sales prices decreased at the beginning of the year, especially in Finland and in Sweden. We maintained our market position in all of our operating countries during the first quarter. The market for used cars grew moderately in Finland and in Sweden during the first quarter. In Sweden, the market contracted slightly compared to Q1 last year. In Finland, the total market grew by 1.2% during the quarter. And in Germany, market grew 2.4% in the first 3 months. And in Sweden, the market contracted by 0.7%. New car registration in Europe grew by 17.9% in the first 3 months in March as much as by 28.8%. Growth was driven by large markets, especially Spain and Italy. In the Nordic countries, however, there were less new car registration that Q1 2022. In Finland, new car registration were down 3.5% in January to March, but in April, there was a 13.6% growth. March was [ eighth ] consecutive with a month with an increase in new car registration in Europe. The growth in registrations is all about deliveries, however, in our understanding, the other books -- the order books are not doing so well. In terms of the overall market development, consumer confidence is still weak, but not longer -- on as low level as it was during Q4 last year. During the year, a lot happened in the used car market and the consolidation of the industry continued. Many operators' focus on online channels has issued with profitable -- huge problems with profitability and had to adapt their operations. For example, the British Cazoo announced its withdrawal from Continental Europe, and in Q1 '23, Cazoo completed its withdrawal from Germany. Also, CarNext has closed its consumer business in several European countries, at least Germany, Norway, the Netherlands, Italy and France. On the other hand, Aramis and Autohero grew their operations in 2022. Aramis made acquisitions in Italy, where it bought Cazoo's operations and also in Austria. Autohero grew its business. These 2 players are now slightly ahead of Kamux both operating in several countries, and that's why we are now fifth largest used car retailer in Europe. In Q1 2023, our revenue decreased as a result of the decrease in car prices, especially in Finland and in Sweden and a lower number of sold cars. As we have stated earlier, we have weighted lower prices, [ costs ] in Finland since Q4 2022. The main reason for the decrease in operating profit was the decrease in metal margin and revenue. The market seems to be normalizing slowly, but we saw modest growth in Finland and in Germany. In Sweden, the market continued to contract slightly, but much less so that during 2022. With the number of cars sold decreasing by 1.8%, revenue decreased by 6% as average car prices fell in Finland and in Sweden. Sales of integrated services as a percent of revenue grew as average prices fell, but absolute euro amount decreased slightly compared to comparison period. Based on the good experiences gained in Finland, we decided to launch the renewed Kamux Plus also in Sweden from February onwards. In Germany, the penetration of financing services continued to develop positively from 27% to 31%. It should be note that the revenue from financing services and Kamux Plus is distributed over the entire contract period. In summary, we announced the combination of 2 showrooms in Tampere, Finland. In connection to this, the utility vehicle sales in Tampere moved to the dedicated location in Lakalaiva area. In February, we announced that we will open a new showroom in Duren, Southwest of Cologne. The showroom was opened at the beginning of the April, and that official opening is taking place just now today and tomorrow. The Duren showroom is our first showroom outside the greater Hamburg area in Germany. The location is excellent as more than 3 million people live in the triangle nearby Cologne, Aachen and Dusseldorf, and the [ area ] are also borders Belgium and the Netherlands. In March, we announced the combination of showrooms in the Stockholm area in Sweden. The Varmdo showroom was closed and we now serve customer from the 2 showrooms in the area. In April, we announced that we -- that the Raahe showroom in Finland will be combined with the 2 showrooms in Oulu, and in future we will serve the customers in the area from the Limingantulli and the [ Oulu ] [indiscernible] showrooms. Before handing over to Marko for the financial review, I would like to remind you that the company will update its strategy and financial targets at the beginning of 2024.

Thank you, Juha. I would like to start by reminding that the comparison period last year was still relatively normal, so the quarter 1, '22. And of course, the impact of the Ukrainian war was still relatively limited. And that, of course, makes the contrast relatively big for the current quarter what we just closed. As Juha was discussing the used car prices, they were still decreasing in January and February. And in the March, there was a slight increase that happen. However, there were relatively strong differences between the models and the manufacturers. And for example, Tesla was making several decreases of the prices at the early part of the year. So the margin what we got from the car, that was still relatively weak, but it was developing during the quarter positively. And the gross margin per car was EUR 1,354, which was down on the previous year. Even though the Kamux operating model is very adaptable for different situations in the business and in the market, however, the operating costs were slightly increasing compared to previous year. And of course, there were certain investments for the growth. We are also currently investing to renew our financial systems. And as you know, with the IFRS treatment, when you are investing into Software-as-a-Service, so-called SaaS systems, you are experiencing this mostly. So not recognizing it as a CapEx and depreciating over a longer period, as typically has been the investment projects for the IT and digital systems. And of course, on the cost, there were certain impact on general price increase in the terms of inflation. Our return on equity was 6.1%, down on the previous year. And the equity ratio, 51.2%, was very strong and improving from the previous year. And still I always -- when I start, I want to underline that the strong balance sheet has been always the backbone of our strategy. When we look at the quarter 1, as Juha was mentioning, the quarter was very difficult and the market situation was continuing challenging from the end of the last year. Our revenue was slightly decreasing when the units, so meaning sold cars, were slightly down and also more when the prices was also going down. Of course, I would like to remind that the reduction of prices, especially in Finland, was partially own choice. As we said before, we were buying also cheaper cars into our stock at the quarter 4 -- starting quarter 4 last year. Anyway, in this context, our revenue was EUR 223.1 million and minus 6% compared to the previous comparison period. Gross profit was EUR 20.7 million and down 14.5%. Our adjusted operating profit was EUR 0.8 million and minus 85.4%. And integrated -- revenue from integrated services was 11.5%, slightly on absolute terms lower than last year, but the relative terms from the revenue was a bit higher compared to previous year. When we look at many of the KPIs, for example, inventory turnover or the equity ratio or return on capital employed, we see the slow fill up of the inventories what we have started now in the spring towards the summer season. Then when we turn the eyes to the Finland, in Finland, the used car market was turning into small plus in the first quarter, but the revenue decrease was mainly coming from the average sales price of the sold cars. So meaning that we were focusing more also on the cheaper cars, meaning our own actions and also slightly from the integrated services. The revenue was minus 0.6%, and it was EUR 152 million. Gross margin was decreasing compared to the previous year and was EUR 15.6 million. In Finland, the gross margin was also relatively weak because of the pure margin what we get from the cars and there was this pricing dynamics behind, and also from the integrated services slightly. We are, every year, competing the financial services provider and selecting the best providers for us. And of course, there are certain differences on these revenue models or how we are compensated, and that might also do some slight changes on a comparison period depending on which companies we are using at what time. Operating profit decreased by 35.2% compared to the previous year, and it was EUR 5 million or 3.3% of revenue. And firstly, it was decreasing due to the car -- average gross margin per car, but also partially from the increased costs. In Sweden, the market continued to be relatively difficult in quarter 1, and our total sold cars development was minus 12.4%. Total revenue was decreasing 14.7% compared to the previous year and was EUR 68.6 million. In total revenue, there is also sales to other countries, mainly to Finland. And also, as Finnish market was also not very strong, so we were selling slightly less cars to Finland as well compared to the previous year. The external revenue was minus 24.4% compared to the previous year. Gross margin decreased compared to the previous year and was EUR 3.4 million or 5% of the revenue. And there was also behind [ this ] margin from the cars. Operating income decreased compared to previous year and was minus EUR 1.1 million or minus 1.7% of the total revenue. And revenue from the integrated services was at the previous year level, EUR 1.4 million or 2.9%. And in Sweden, the operating profit was decreasing due to the decrease of sales and also average margin per car. As we were discussing also on the previous report, we are currently not planning new openings in Sweden, but concentrating our efforts and focus to improve the profitability in Sweden. In Germany, the picture was slightly different, and I'm happy that we were able to grow in Germany. And in Germany, the revenue was growing with sold units, meaning sold cars, and also average -- slight increase of average price. Total revenues increased by 9.1% compared to the previous year and was EUR 25 million. External revenue increased by 8.3%. So there was also a slight increase to the deliveries inside the group as well. Gross margin increased to the previous year and was EUR 1.7 million or 6.9%. That I consider relatively good performance in the environment where the car prices were also in the beginning of the year decreasing in Germany. Operating income decreased compared to the previous year and was minus EUR 0.7 million or minus 2.9% of total revenue. And operating income was decreasing due to our investments for the growth, as we said, we were opening now in April, the Duren store. Sales from the financing services developed well, and revenue from integrated services increased to EUR 0.6 million or 2.7% of external revenue. Then, when we look at the balance sheet and our inventories, we were succeeding relatively well, managing the capital tied into the inventories. The inventories were decreasing more than the revenue, which I consider always as a positive development. Purchasing market was working relatively well, excluding Sweden, where the weak ground has been quite much attracting buyers from all over the Europe for the wholesale market. The new car delivery times are also slowly starting shorter, and that is, of course, releasing used cars to the used car markets as well. The net working capital was decreasing 9% and inventories were decreasing 15.8% compared to the previous year. And as we were discussing before, so in -- especially in -- when the Corona pandemic was strongly affecting the business, we were driving constantly, let's say relatively high inventory as we couldn't trust that we are able to replenish it when the situation is picking up. And I would also like to remind that in year '21, our net working capital was impacted by relatively high car tax debt what we had in Finland, and that was due to the customs IT project what the people had, but for -- at the end of '22, that impact, of course, was totally out already, but that is increasing the '21 comparison numbers. When we look at the cash flow, the cash flow from the operating activities, of course, is directly impacted by the changes in the inventory. And in the operating -- in the cash flow, you can see now our -- the impact of increasing the inventories towards the current summer season. And the cash flow from the operating activities was minus EUR 8.1 million and was a slightly better compared to last year. We still continue the investments leading with the knowledge and growth. And in the quarter 1, the investments were EUR 0.4 million, and they were dividing EUR 0.2 million for material and EUR 0.2 million for immaterials. I was mentioning that we were investing in the digital systems, but also we have been opening this Duren store now in the early April. In the comparison period last year quarter 1, we were driving up all mega store and processing center, and that was increasing the investments in the comparison period. We have been also investing or increasing our own resources in -- our digital resources and that you can also see that in the group functions, the costs have been slightly growing, and the investments have been slightly lower. So meaning we are currently doing more by ourselves and buying less from the external providers. Dividend from the last year -- the Annual General Meeting decided that dividend is EUR 0.15 per share to be paid. And now in the early May, we were paying the first installment EUR 0.05 per share. Then I will go to the strategy, outlook and financial targets. For this strategy period, growth was very focus point and very essential target. However, the changed market situation with Ukrainian war has been impacting our execution of the strategy. When I go through these main areas of the strategy, I would like to remind that because the market was still difficult. We have been focusing on the basic things, so meaning buying and selling and inventory management. But when we look at the customer experience, we have been now taking renewed Kamux Plus also in use in Sweden, starting from February, considering utilizing data and leading with the knowledge. So we are currently renewing our financial system. Concerning the processes, we have been doing quite many actions in our network operations. We mentioned about combining the Varmdo store to other Stockholm stores, centralizing the Tampere region stores, and we also informed about Raahe combination to other old stores, developing capabilities and continuous learning, we have been strengthening our training and HR organization further. Concerning our financial targets for the strategy period '21 to '23, this strategy when we launched it, it was launched in the quite different situation in the market and the world. And I just would like to remind us that in the year '21, the growth was almost 30%. However, last year, when Ukrainian war started and the impact of the Board has been changed in the market situation significantly, and also executing the growth has been quite significantly different. In the first quarter, our revenue growth annually was minus 6%, adjusted operating profit, EUR 0.8 million; adjusted operating profit margin, 0.4%, return on equity, 6.1%, and dividend on -- for the year '22 was 55% from the net profit. So in main -- most of the financial targets, we were not in the target level in the quarter 1. Outlook for 2023 is unchanged. So in '23, Kamux expects that Kamux adjusted operating profit -- the growth from the previous year when the adjusted operating profit was EUR 17.5 million. And I would like to remind us that there are still a lot of uncertainty in the market. Consumer confidence is still low. Interest rates are high. Inflation is still up. And of course, the different -- the discussion and choices between the power sources, especially last year, has been very strong. And now I would like to just summarize then our quarter 1. So revenue decreased 6% to EUR 223.1 million. Gross profit decreased to 14.5% to EUR 20.7 million. Adjusted operating profit decreased by 85.4% to EUR 0.8 million or 0.4% of revenue. Like-for-like showroom revenue decreased by 10.4%. Sales of integrated services developed in line with the revenue, and revenue from integrated services was EUR 11.5 million or 5.2% of total revenue. And the market for the used cars seems to be stabilizing, but demand remained sluggish and consumer confidence was weak. Car sales price decreased -- sales prices decreased at the beginning of the year. So thank you, and we are now happy to answer your questions.

[Operator Instructions] The next question comes from Maria Wikstrom from SEB.

I have few questions where I would like to start about the gross profit per car. As you said -- you had said earlier that you saw that the gross profit per car was improving month-over-month in Q1. So has this trend continued in April as well?

Thanks, Maria. That is very good question, but unfortunately, we cannot comment on the second quarter development.

Then maybe a second one on the -- just the consumers' appetite buying a car with a loan. So the penetration rate was flat year-over-year in Finland. But is there -- I mean, is there any changes in the consumer appetite of buying a car with the credit now when the interest rate has been up quite substantially? And in terms of the profitability, do you still see that you can reprice your -- the higher cost of credit?

If you think about the last year, we saw that the penetration rates for the financing were developing across the markets positively. Now in the quarter 1 we see that they remained in very good level or slight positive development in Finland, Sweden. In Germany, the penetration rates compared to previous year were still nicely growing to 31%. So meaning that the appetite and interest for the financing is among the customers and they are seeking for these services that we can see. And as we have also said before that we have increased along the market interest rates also the offering rates that we're offering to our customers.

And then finally that your guidance is growth in adjusted EBIT for the full year. And of course, I mean, the Q1 started quite sluggish, which I think, I mean, you kind of like highlighted earlier as well that the market has still been difficult. Did the Q1 outcome match your expectations what you had when giving the guidance? I think that was in early March?

I think it's really -- relatively clear from our comments that we were not fully satisfied with the quarter 1. However, when we think about the outlook, we were considering there also quite some uncertainty. So in that sense, the outlook remains unchanged.

The next question comes from Pia Rosqvist-Heinsalmi from Carnegie Investment Bank.

A few questions, if I may, and I would like to start with the gross margin. You say in the report that the share of plug-in -- or not the share, but yes, the plug-in hybrids and the EVs have continued to increase clearly. I would like to understand now in Q1 this mix shift, is it burdening or supporting your gross margin in Q4 -- sorry, in Q1?

What we -- I have said before and what we see clearly that on the long term, the trend is driving towards electric vehicles, and of course also plug-in hybrids has been there more. Typically, those cars are relatively more expensive than the normal traditional combustion engine cars. But if thinking now the dynamics of the last year and especially the share of expensive and -- cars and EVs and namely Teslas in the stock, of course, the proportion of those cars were less in the quarter 1. So in that sense, maybe the impact was not so dramatical compared to the previous year. On the overall terms, we have said that we don't see really big differences between the power sources, what we sell. But of course, especially last year, the discussion -- and the very drastic changes in demand between the power sources has been impacting us strongly.

And if I continue shortly, when we speak about the price levels, is it -- does it matter for us, is it diesel or EV car, it's more about the price level what is the impacting about the situation in Q4 and then also partly Q1.

Then on integrated services. Why did the integrated services sales decline year-on-year? So was it explained by the average selling price decline? I'm just looking at last year's numbers when the number of cars sold also declined, but integrated services grew strongly. So can you please -- discuss this, please?

I think I did a little bit -- start a bit further that, if you think about the last year -- and the comparison period for the last year, so meaning '21, so there, of course, the COVID-19 was having quite still -- strong impact still to the business. And let's say, people were not really using so much financing services. And then what we see throughout the last year that the demand for the -- especially for the financing services were increasing across the markets. So that was, of course, impacting the comparison period from '21 to '22 and now from '22 to this year '23. So that dynamic is there. But you are right, of course, average sales price has an impact for the integrated services. And also the sold units have impact there as well. And I would also still maybe want to remind that as we have been discussing about the renewed Kamux Plus and impact of the Kamux Plus in Finland and now in Sweden, I would like to remind that the contract period are long. So -- and of course, we are then, so to say, phasing the income proportionally through the contract period. So meaning that even though if the penetration rate is raising, it doesn't necessarily immediately materialize in the revenue from those services.

And as Marko earlier mentioned about the -- what is the model with the finance companies, how they -- how the revenue coming in, those are small differences being the years and, for example, now compared to '22 -- to 2023.

Then I'm coming back to the question Maria asked regarding integrated services, and particularly financing. So in this environment, have you needed to lower your own margin earned on the financing?

When the interest rate increased, of course, the [ loss ] what we are selling are fixed interest rate for the customers and it's easy to buy and very secure for them. But when the interest rate increased, it's not so easy to put in all those interest rate increased. Of course, we do our best, but we will see is there coming impact for our revenue on that side.

If the price was 1 year ago -- interest rate 4.9% for the customers, and now with -- the asking price is 7.9%. There is big difference between there.

Then a few -- still a few questions maybe on Sweden, and the year seems to have started very slowly and you have to my calculations, lost some market share in the quarter. So with regards to Sweden, are you proceeding according to your plans and expectations? Or are you facing a larger headwind in Sweden than you assumed?

As Marko mentioned, and maybe you see from our feelings that we are not satisfied about our Q1 results. And also in Sweden, we are not satisfied about the sales and also the margin from Sweden. But we did a program for the Sweden in 5 different topics, what we are driving and checking every week how it's going further. And we see the better impact what this came out month-by-month in this year. And I believe that it continue also.

Then a question still, if I may continue, on your balance sheet, and it's clear that your balance sheet is strong. But can you remind me, have you disclosed the covenants on your loans? Do you have a net debt-to-EBITDA covenant? And is this at risk if the current market conditions stabilize, but not significantly improve?

We have -- I think we have not disclosed the covenants on details. And of course, as everyone, we also have them. When you look our current numbers, balance sheet doesn't really raise any concern. And I think it's also good to remember that the whole car stock is our own. So meaning we are able to adjust the level of cash and also the level of debt with our stock, or changing the stock levels as well. So there we have certain things in our own hands. But, I mean, of course, very clearly, let's say, if we would continue to make less than EUR 1 million per quarter, that would cause us a problem, no doubt.

And then finally -- yes?

And this is not the level where we are.

Then finally a question on -- a very nitty question, but on the depreciation and amortization, you -- there was a depreciation on group level now in Q1 which you have not done previously in the comparison quarter or even last year. Can you just explain what is this?