Kamux Oyj (KAMUX) Earnings Call Transcript & Summary

Welcome on board on Kamux '23 full year review. My name is Tapio Pajuharju, I'm the CEO. And next to me, we have our new CFO, Jukka Havia.

Good morning, everyone.

First of all, I think I'm very happy for the performance. We passed the EUR 1 billion benchmark, not with a big margin, but passed. And then I think on the last quarter, we made a major improvement compared to prior year, same period, profitability and I will dive a bit deeper on that one going forward. We'll have a look on the Q4 performance, both on the functional and on the financial performance. Then we'll have a look on the market position, highlights on that one and then how we've been executing this strategy. Jukka will have a deep dive on the financial numbers. And then we'll have a bit of outlook going forward and do a short summary before we are ready for the questions and comments from the audience. I think our vision is unchanged. We dream to be #1 in the pre-owned and pre-loved cars in the European marketplace. We are not on the podium. We are among the top 6, top 7 on the marketplace, but I think that's very doable going forward. And I think on the 20th of March, when we have our Capital Markets Day, we'll share a bit about the update, the strategy and the road maps going forward as a company and as well as on the market-by-market development in that respect. Then I think, all in all, on the top line, slightly shy of 10% increase on the net sales, mainly driven by excellent work in the Finnish marketplace. And then on the gross profit level, increasing actually on all of the markets, very happy for that. And then the adjusted operating earnings taking a big step forward. It's good to remember that our last quarter of last year, it was not highlighted, it was a very struggling period. In that respect, we had a major, major improvement. Then on the like-for-like showroom sales, had also nice growth, almost 10% in that respect. And then on the integrated service, I think we are returning back to growth. Most of you may remember we've been struggling a bit with the financial services we've been selling. Now when the margins are settling, we'll be learning how to do the trade, and we've been gradually improving on that one as well as on the Kamux Plus on the insurance sales in that respect. Cash flow traditionally is rather strong in the last quarter, the same pattern for this year. And then on the number of sold cars, we even exceeded the 10% and that also tells that the average price of a car slightly went down. Strong growth on the Finnish marketplace; steady growth in Germany; unfortunately, not a good growth in Sweden. We've been taking a bit of a step backwards. I will share a bit more about the Sweden going forward. Market, in general, rather steady. And in all of the markets where we operate, the used car market took a bit of a tick upwards, which is favorable in that respect. But we are still much below the highlights of the '22 and even '21 on that respect. Then I think on the market development, we maintained our market share in Finland, clearly #1, both on value as well and specifically on the pieces. Sweden, unfortunately, we took 1 step down and we are no longer positioned 5, we are positioned 6. And I think what is very, I would say, describing for the Swedish marketplace it's been polarizing quite radically. The top players have been strengthening going forward and the bottom players have been -- having really struggled, even some of them bankrupted. The small players only been able to operate if they've been focused on a certain type of vehicles. For example, utility vehicles, classic cars, sports cars or something. Very narrow focus, good. But if you are a generalist and small scale, not an easy market in Sweden. And Germany, we've been maintaining our market share and position and we've been now growing a bit out of the Schleswig-Holstein in the Northern Hemisphere with 2 stores out of that spectrum. Then I think on this one, the volume development, especially on Finnish marketplace, very visible. The different shades of green going out in the right direction on the top line. And especially on the bottom line, I would say, a rather nice improvement compared to the prior period of Q4 last year, which was not the highlight, but I think we are on a rather good trend. When you look at the development from Q1, Q2, Q3 and Q4, I think we are in a rather steady trajectory. And it's good to remember that the seasonality of the car business is so that Q2 and Q3 tend to be stronger than Q1 and Q4 on the marketplace. Then I think when you have a look on the development as a totality, still Finland is very dominant on the car volume. Nice increase on that marketplace. Germany also stepping in. Sweden took a step backwards and I will have a look on the Swedish market in a short time. Then on the integrated services, I think we have had a steady growth throughout the year. And now, I think we are returning back to growth on that one. And the financial service is also becoming a good stronghold in that respect for all of the markets. Then our network, I think we'll be working on the virtual store quite nicely. Then on the brick-and-mortar stores, we've been upgrading some places in Swedish marketplace. They have now come into play. Germany, we've been going out of the Northern Hemisphere. Düren store has been operating for the better part of the year. The Hameln, we just opened week before Christmas, but it's up and running and operating. Heide has been relocated. And we are in the process of relocating our Ahrensburg store, I think we're opening it on the 1st of April in a new location. Finland, I think with the capital region, we've been working quite a lot. Niittykumpu store has been upgraded, the ones who have been in the Ring III arena. Of course, it was also upgraded. Porvoo, we've been doubling the size. And then the new flagship store we are opening in Tampere, I think we're opening it on the 1st of April. And that's going to be also a nice improvement in that respect. Then Finland, I think, quite a nice spin on the marketplace. We gained speed towards the end of the year in all of the areas in Finland and all car types as well and also gaining a nice grip on the capital market place in the nearby Helsinki region. Then also on the profitability, we took a major step upwards and I think very happy for the performance of the team over there. Then Sweden, I think we had changes in the management team and that's why we took a bit of a deeper look on the way we operate. And we changed some of the ways we operate, that's a bit visible on the top line and also on the bottom line. And during the deep dive, we realized that some of the process have not been done the way we would like them to be done, mainly in the areas of tires and rims. When we buy cars, they usually come in with the second set of tires. The way they've been handled in certain stores was not the way we would like them to be handled and that's something we've been now addressing and gaining control again. Then some of the prices, both in buying and selling on the cheaper category, the salespeople have had a lot of authority to do that. We have changed the authority and that's in the benefit of the company going forward. So those 2 things we've been addressing. They used to be not the way they should be and now they've been corrected going forward. Then I think one may ask, is that the substantial improvement on the profitability? Not substantial, but I think it all boils down to an improvement in profitability going forward in Sweden. So it helps developing the profitability over there. Germany, I think a steady journey started at the summer and now we've been executing that step by step. We changed the way we process the cars, how we get the industrial quality on the cars. And now I can say that most of the -- up of the mid-price point cars are like new and that's where we're improving a lot and the game is rather strong on that one. At the last quarter, profitability was not exactly what we wanted, but I think we are on the right traction and right trajectory in German marketplace. Then I think we'll have a bit more to share, most likely not the magic, but we will share a bit of the roadmap going forward as a company, what we're going to be prioritizing, what we're going to be doing. Then on top of the roadmaps on the marketplace, a bit about the adjacent services and adjacent marketplaces where we're going to be operating. So unfortunately, you need to be patient and wait until the 20th of March, then we will share more news on this one. Then I think we'll pass the word for Jukka, and Jukka will have a bit of a deep dive on the numbers. Please go ahead.

Thank you. So what I'm going to do, I'm going to look at this from the group perspective, so the total group consolidated. And like Tapio stated, we are now in the phase of gradual recovery. So clearly, especially the second half of '23, already showed growth both in terms of volumes, but also especially as far as the gross margins are concerned. And if you look at the full year gross margin, we ended up having about EUR 1,500 on average per car. Of course, there's quite a lot of cars we sold in Q4, it's more than 16,000. So there's variance. Of course, the mix has an impact as well. But I think that's a strong statement of the fact that we have been able to start to improve the profitability side of the equation, and the market demand for the cars has stayed strong as well. So if you compare in a longer-term perspective, now the recovery is going on. There is clearly on the marketplace that everybody knows, there's inflationary pressures. So the cost management, cost control will be and has been a topic we have started to pay attention to. And I think that helped already in the last quarter of last year to offset some of the inflationary cost pressures, which we, of course, had. I think efficiency in general is a topic on which we will, of course, pay attention and that's going to be going forward. Inventory management in this business is very crucial. If you look at the -- where we landed end of last year, and maybe the '22 year, the last year isn't the best sort of comparison, it was a little bit different. But anyways, we were able to improve. So I think it's also a testament to the fact that some of the operational actions taken by the company has bear some positive benefits. And I think what is good to note is that Kamux, and I'm coming from the outside, Kamux really has a strong balance sheet. And a strong balance sheet will be one of the preconditions and basis for the future growth. And if you look at the return on equity, a little bit going down. On the other hand, the equity has been trending up as well. But if you especially look at the equity ratio and the debt in relation to what the size and nature of the business is, I think this is in well and good shape as we speak. The EPS, which is, of course, the net profit, and end of the day, ended being at EUR 0.24 per share. Little bit lower than last year, but almost at the same level. So I think all in all, the normalizing markets and the gradual recovery are the topics that we already discussed by Tapio. Now looking at this little bit more from this sort of table financial perspective. A couple of highlights. Of course, on the left-hand side, you see the quarterly results, that is October, December. And like Tapio stated, the Q4 is not exactly the peak season, that happens in the summertime. And then on the right-hand side, you see the full 12 months, both '23 and '22. So the revenue, we hit EUR 1 billion. We went past that milestone, I think it's important. Even if Swedish kroner was not that strong during the period and all of it, but still we made EUR 1 billion, which is an achievement. But I think more importantly, what I'm happy about is that the gross profit, both in absolute terms as well as a percentage of revenue, we have been able to improve. And that is, I think, something to look at going forward as well. The integrated services revenue, financial, insurance, some other services we sell, is typically higher as a share of the total revenue in the last quarter and that happened '23 as well. That is linked to the way and structure and the terms and conditions of these agreements. But if you take it a little bit longer-term perspective, I think that's one additional profit driver, which we have been able to drive forward, and that's going to be a good -- going forward, good thing to look at. And the organic growth, the like-for-like showroom growth, in Q4 was 8%, which we think is a good achievement. Like Tapio stated, of course, the average price of the car was a little bit down versus what it was historically. And if you look at the European markets, this has been the trend as well. All in all, solid and good performance in all the fronts. Inventory management is, of course, really important. And there is fluctuation. And the typical cycle is that we start to buy cars. Now we are approaching the springtime towards the summer season, which sort of increases inventory, and then after the peak season that comes down. And that has been the case for the last years, as you can see here. And inventories is a major part of the net working capital. So that basically drives that. Nothing special. I think it is a good result. And I think what is also important is that what is the quality of the inventory, what do you have there? It's not only the total number, but what is the composition of it, which I think is another topic, which you cannot see directly here, but which is an important sort of driver. And then that drives the cash flow. If you look at the cash flow of Kamux, for the last few years it has been very much geared towards the last quarter. So that's when the cash flows in. In '23, it is EUR 27.6 million, the cash flow from operating activities, almost at the same level than the previous year. And like you note on the right-hand side, it's very much due to the fact that the change in working capital, that is the change in inventories, was to the positive and that drove the cash flow. But all in all, whether it's the cash flow, profitability or the balance sheet, I think the performance has been very solid end of last year. And then one other topic, which I think has been the tradition here going through some of the internal development. And of course, we have quite heavily invested over the last few years into the IT system, the digital capabilities, our own ERP, which we have built in-house. I think one change structurally, which you can see on the higher end, is that historically up until the early part of '22, we actually relied quite heavily on the outside external service providers. Now for the last year, '23, included, we have really much taken that in-house. So we have in-sourced a lot of the activities and gone into a development mode whereas the build was done already. And this is now, of course, for us, an asset which we will have to utilize even better going forward. We have a lot of information, we have lot of data and some of that, we will, of course, now have the full utilization for the next few years. And then, of course, we also have spent some money on the showroom upgrades. Tapio mentioned that. Now the network in '23 didn't change that dramatically, but we have been doing upgrades and uplifts and that is a topic, which will continue going forward as well. So I think that the customer experience and all linked to that is important, both online and offline because this is omnichannel like this, isn't it? And then based on all of this, the Board of Directors have decided to propose a dividend of EUR 0.17 per share that would be distributed from the fiscal year -- financial year '23. The EUR 0.15 was what was decided a year ago. Of course, it's end of the day the shareholders' decision. The AGM will be held on April 18. This corresponds to -- this EUR 0.17 corresponds to about 71% payout ratio, so as a percentage of the net profit of the EPS. It's about EUR 6.8 million in absolute terms. And the idea of the proposition is that it would follow the same pattern that was done a year back, that it would be paid in 2 installments. The first one, EUR 0.07 per share in -- after the AGM end of April. And then the second installment, which is EUR 0.10, at the end of October. So that's the proposition from the Board to act as far as the dividend is concerned. And then we go to the future, and maybe Tapio, you can take over from here.

Okay.

Maybe look at the first -- what happened for the last 3 years.

I think this is already becoming a bit of an old news, and I think we have been focusing more on the profitability than the growth and fixing the underlying profitability. And I think we need to wait until 20th of March when we're going to be sharing the way we're going to be going forward. But I think all in all, we expect our profitability to be improved. And I think that's something we've been working, and we have a rather solid trend how to do that and we have all the productivity improvement, KPIs looking in the right direction. So feel very, very good about that. Then maybe a summary on what has been achieved. I think very solid top line growth, exceeding the EUR 1 billion benchmark and almost 10% growth on the last period. Then on the gross profit, throughout all the markets, Sweden included, good job in that respect. And at the end of the day, adjusted operating profit take a major step upwards, like-for-like, slightly shy of 10% growth. And then on the integrated services, returning back to growth. And then on the volume growth, we've been ahead of the market. So I'm very happy for the performance. And I would also like to pass thanks for everyone from the Kamux team to be onboard, all of the -- our customers and all of our partners for a job well done for the year of '23. Now, I think we are ready for questions and comments. So we get Katariina joining the team.

Thank you, Tapio. So my name is Katariina Hietaranta, heading Kamux's Investor Relations. We start with questions from the audience here. [Foreign Language]. Maria, please go ahead.

Starting with the metal margins, obviously, it has been a good performance, I mean, throughout '23. I think starting from January, it has been an upward trend. Now lately, we have seen used car prices to come down in Finland if you look at the statistics of Finland data. What kind of risk you see, I mean, for the metal margins going forward and going into the 2024?

I think we've been taking a rather solid and conservative position on the inventory, like Jukka said. There is still some volatility on the prices of certain EVs and certain hybrids. And I think when you see what is in our inventory, we try to match rather well on what is the market demand on a country basis as well on the regional basis. So in that respect, I don't foresee any major risk on that respect. And then when seeing what is happening with the new car prices, apart from the new players in the EVs, they are going up quite gradually -- actually big steps. One day that's going to be reflected in the used car prices as well. So in that respect, I think we are in a rather good position.

Then if we talk about the competition in Finland, how do you see the competition to develop? I think we heard some players who have skipped offering the new cars for certain brands and shifting more focus on the used cars. So how do you see you're going to develop -- or perform in increased competitive environment?

I think roughly the same pattern like everywhere else. The ones who are good, and I may say on the top 5, top 6, they're going to be growing and doing a good job. It's not so easy to come into the business. Even if we have been highly successful in the new car market, this is a different nature and a different way of operating. Some of the players who have decided to stop new cars, our read is that maybe they were forced to do that and that they didn't come voluntarily to the used car market as well. So I think they will have a bit of an uphill battle in that respect.

And then final question on the integrated services and more specifically on the finance product. When the interest rates were coming up, I mean, you said that you couldn't fully reprice your -- the higher interest rates in your own prices. Now we've seen a small downward shift in the interest rates. And do you think -- I mean, the -- you are able to keep your margins and even grow it from here if the interest rates will decline during 2024?

I think what we have seen already now is that our own activity seems to be sticking quite well. We try to be fair, not aggressive, on that one. And on the other hand, the psychology of the consumer is working on the same direction. So we feel rather okay on the development.

Okay. Next, we have Rauli.

Pia was first.

Pia was first, sorry. My apologies.

I was physically in a better place here. Yes, Rauli from Inderes. So a question from -- related to Sweden, like you mentioned the volumes were quite a bit down in Q4, which you attributed at least partly to some kind of process changes. So how should we view this going forward? Was this isolated to Q4? Or should we expect the volumes and sales to be notably down also now during the coming quarters?

I would not foresee them to be notably down, but to make a big uplift, we take it step by step. And I think we need -- we put the processes in place. We would need to feel secure that they are sticking and then we can step on the gas again. But I think now, we have been correcting a couple of things, which should have been corrected a long time ago. They were not nationwide, but they were limited in certain stores, but it had an impact on the, I would say, spirit and mentality of the Swedish market for some time.

Okay, clear. And then the second question related to the market outlook. I think some -- at least one player has noted that due to the low volume in new cars, there might be a shortage going into the summer season in the used cars. So do you expect any kind of -- this sort of development?

I think it's not going to get easier. But when you have multiple sources and you are operating in multiple markets on the European platform, will not be a major battle in that respect. It should be business as usual, maybe not as easy a certain time, but very doable.

Now Pia go ahead.

I'm coming back to the misconduct in Sweden you discussed. So was this something you would describe as opportunistic or systematic? And what kind of financial impact would you estimate to have seen in 2023 and before?

Yes. We have not made a full analysis of the total impact. When it's now corrected, it's all favorable and it will improve the profitability. And it was not spread out through the chain. It was individual stores who were not fully complying with our code of conduct regarding the second set of tires and rims and then certain -- both on buying and selling the lower-value cars, the salespeople have a certain authority where they can operate. The limits were higher than we were used to having in Finland, for example.

Okay. Then regarding your guidance for this year. So looking back at 2023, we saw a EUR 1 million improvement. Should we see this as the improvement for 2024? Or can you describe the logic -- assumptions behind your guidance?

I think we are working on a gradual and continuous improvement on the profitability, and I think our aim is higher than that. And I think we aim to be closer to the standard of the industry. And the question is the time frame, how fast we can reach it, but we are in a good trajectory on that one.

Then in the financials -- in the net financials in Q4, were there any special items? It seemed a bit higher than normal.

Well, of course, if you think of -- below the EBIT, you mean? Yes. What shows there is that the FX-related items, including the hedging activities we have done is then, of course, the results will be realized -- both unrealized and realized FX. So that is, I think, the part that changes from quarter-to-quarter and that is one of the drivers behind it.

We have next, [ Jussi Koskinen ], please.

Yes. [ Jussi Koskinen ]. Any changes with competitive advantage in the market, in industry or with Kamux?

I think we are addressing the consumer better than ever. And as long as you can deliver what the consumers are willing to have, you're going to be good. And then on the service, I think we will maintain our grip on the friendly active, but not the aggressive way of operating with the consumer in the omnichannel world and we tend to be rather good on that.

Thank you. Any further questions here from the audience? Maybe we give a bit time to check if there are any questions on the teleconference line.

[Operator Instructions] The next question comes from Calle Loikkanen from Danske Bank.

It's Calle Loikkanen from Danske Bank. I wanted to ask regarding the average car prices in '24. Obviously, as you mentioned in your presentation, there's been a bit of pressure -- on a European level on -- pressure down on the car prices. But obviously, you can probably influence the average prices by the sales mix or which cars you choose to have in the inventory. So what are your expectations regarding the -- regarding your average car prices in 2024?

I think, all in all, should be rather steady and maybe taking a slight upward trend. The electrification, both in terms of the EVs and hybrids, that's going to take the average price up. In Germany, we have elected to take a notch lower-priced cars. We were actually much higher-priced cars in Germany than we were selling in Finland and Sweden. We take a notch down over there. But also in Germany, the new car prices will be reflecting it and it will normalize quite rapidly. And then I think I'm foreseeing a slight upward trend, providing there is no major hiccup in the economy because that may then have an impact on the psychology of the consumer, which will then take a step back to the lower price consumer. Currently, we don't see any of that slightly going up.

Okay. That's very clear. And then my second question was on Sweden. It's basically twofold. So firstly, we've seen -- you mentioned bankruptcies and similar in Sweden and some players or some competitors being a bit challenged. Are you seeing the kind of competitive landscape easing at all due to these bankruptcies and turbulence in the market? Or does it remain as tough or even getting tougher?

I think it's, in a way, cleaning a bit about the industry and taking the, I would say, odd balls out. The big players in Sweden, they've been strengthening quite rapidly and doing a good job over there and we are rather close on them. So I think in that respect, the market dynamics tend to be roughly similar. I don't see any major, getting it easier or getting it more complicated, roughly the same.

Okay, okay. And then still continuing on Sweden. Then on the sourcing side, in the past quarters, there's obviously been -- because of the weak FX, there's been a lot of foreign buyers in the market. Have you seen any changes on that side? Is the sourcing market becoming easier in any way in Sweden?

Yes. I think during last year, we did have months and quarters where the local sourcing was rather complicated towards the year. And I think the availability on the -- even Blocket and the [ equal ] platforms, they were going up. That's in a way easing the sourcing market for the low-cost Swedish market and maybe normalizing some of the export out of Sweden as well. But I think longer term, Sweden has lost a major block of cars during the past 2 years. And going forward, they need to figure out to increase the new car sales big time or then start importing cars from somewhere else because I think they lost in 1 year more than 140,000 cars going somewhere else than in Sweden. So it will need to be replaced when going forward.

Okay. And is -- do you see you positioned well to kind of gain something here in that trend or someone else who is...

At least we are well equipped for sourcing from multiple markets. So in that respect, we should be having a good, if not stronghold on the position.

Thank you, Calle. I don't think that we have any -- do we have any further questions from the -- no, but from the teleconference. Pia, go ahead.

Yes. Regarding integrated services, are there any changes in the terms and conditions for you from your partners, which we should be aware of in 2024?

I think we do annual negotiations for all of the services. There are some changes, none of them material. But as we try to elaborate with our muscles, so they tend to be rather beneficial if we so are.

Then finally, have you identified any specific market trend, which is bubbling under, but which hasn't impacted you yet, but which you are looking at keeping your eyes on?

Maybe not a trend, not a new issue in any case, but I think we've been rather transaction driven in our way of operating. So we've been also considering how to operate on something else than just buying and selling. And I think that's becoming visible. We were just in Germany, and we realized that car sharing, which has been in trouble for many years, now is coming back on the certain big cities in Germany. So we keep eyes open for many other options as well.

Thank you, Pia. We have a couple of questions over the chat. A few were about the Swedish misconduct, but I believe that we have addressed those. But then, not sure how much you want to comment. This is actually to the Board. Why do you pay out so much in percentage of profits while you could invest the money into growing your network?

That's beyond my capability and pay grade. That's for the owners.

That's what I thought. Maybe a bit more -- a very different question in terms of what do you think about the targets on return on invested capital to return on capital employed in the medium to long term?

I think net working capital is something where we do a decent job, but I do foresee opportunities on improving that. Having said it, they're not going to be big steps. They're going to be gradual improvements, and they will come into play during the time.

And of course, we have just today told that, on March 20, we will discuss our long-term targets.

Yes. Good. If nothing else on the...

If we have no further -- no further questions.

Then thanks for the attention. We'll conclude today. All the best. Take care. Bye now.

Thank you.