Bilia AB

STO:BILI A

Earnings Call Transcript 2021-Q1

[Kristina Franzen, Chief Financial Officer]

Good afternoon. I wish you all welcome to this telephone conference about Bilia's first quarter results for 2021. [Operator Instructions]. My name is Kristina Franzen, and I'm the CFO of Bilia. And together with me, I have...

[Per Avander, CEO & MD]

Per Avander, the Managing Director for Bilia AB. And we would like to start with some highlights. And after that, as Kristina said, we can have Q&A. And I will start.We reported operating profit of SEK 528 million, compared to SEK 279 million last year. It's an improvement of close to 90%. It's the highest result and margin for first quarter and the second highest quarter ever. The margin in the business was 5.6%, compared to the last year, 3.7%.Norway stands out in the report. The profitability was SEK 206 million, compared to SEK 52 million the last year. It's a new record quarter for Norway.We divide our business in 3 business areas. We have the Service Business, Car Business and we have the Fuel Business. And today, we would like to have information about the Service and the Car Business.If we start with the Service Business, we had a profitability of SEK 390 million, compared to SEK 263 million last year. We have an improvement of the profitability in all countries. But I can say, Norway stands out in a positive way in the Service Business as well.We had 1 day less in all our countries for the quarter. If we talk about the growth in the Service Business, we had in, in the Bilia Group, 7% in the -- in group. Norway, improved 26%; Sweden, minus 1%, due to our body and paint shop. The demand in the body and paint shop in the quarter was a little bit weak. A lot of inhabitants in Sweden, they are working from their homes. So there is not a queue in the traffic, and it's less accident. We have talked to the insurance companies. So we don't, what you say in English, reduce our market share in the body and paint shops.If you go to the Car Business, we have the profitability of SEK 225 million, compared to SEK 80 million last year. In the new Car Business, we have an improvement of the profitability of a little bit over SEK 100 million. And for the used cars, it was close SEK 100 million in improvement.The used Car Business, the demand in the quarter was strong, and we had a really good margin. And we assumed much more exclusive and more expensive cars in the quarter if you compare to the year -- the last year.New Car Business, the turnover improved 36% due to changing in the tax system for new cars in Sweden. The government, you can say, they support or they moved some money from plug-in hybrids to procure electrical vehicles. So in the end of March, we delivered a lot of diesel and petrol engine and plug-in hybrids. And I guess now in quarter 2, we will deliver much more pure electrical vehicles.In order taking, we improved 11% compared to the last year. Sweden, 8%; Norway, 30%; and West Europe, only 2%. In Germany, we have closed all our showrooms for -- in the quarter. So we had a lot of minus when we talk Germany. It's a little bit better in Luxembourg and Belgium.In Norway, we launched pure electrical vehicles from BMW and Volvo in the quarter, so the order taking has been very strong in Norway. The backlog is a little bit over 13,500 cars, compared to the last year, it was 160 less cars. The backlog in Norway improved 55% compared to the last year. Kristina?

[Kristina Franzen, Chief Financial Officer]

If we look at the operational cash flow, we had a slightly negative operational cash flow that primarily came from a higher working capital. That related primarily to accounts receivable because there were very high deliveries of cars, both in Sweden and in Norway by the end of the first quarter. We also had a somewhat higher level of inventory. However, given that we were on -- running on very low levels by the year-end, we believe that was even good and actually means that we have a good level of inventory as of today.If we look at the financial position, even if we had a slightly negative cash flow for the period, we still have a receivable towards the bank, almost SEK 1.4 billion compared to the SEK 1.8 billion we had at year-end. It means when we look at the net debt that's now, for the first quarter, we actually had a little bit of a net debt amounting to SEK 40 million. Some of you might know that we actually have a positive net debt by year-end. It also means that net debt-to-EBITDA is now more or less on 0 compared to being on the positive side.If you look at the net debt and include the IFRS 16 liabilities, there were an increase of around SEK 900 million. And out of that, actually SEK 600 million came from the new leasing contract for the new facility in Stockholm, which is one of the biggest we have, and it's now then newly built and a very fresh facility for us to use.

[Per Avander, CEO & MD]

Yes. We have acquired a lot in the quarter 1. One example is rim repair. The company's name is Felgteknikk AS in Norway, and we took over the business in January. In Sweden, we will start rim repair as well in Jönköping and in Stockholm.We have acquired Porsche company in South Sweden, Helsingborg and Malmö, and we will take over it in May this year. The same for Funnemark Toyota business in, you can say, the West -- Southwest from Oslo area in Norway, and we will take over it as well in May. And we announced last Friday, we will acquire a Mercedes dealer in Stockholm with 4 outlets. And we see we can take over it the 1st of July.And one question can be why we acquire more of other brands into our portfolio? But what we can see Porsche is a strong brand and today -- Porsche is not only a sports car. Today, they sell a lot of SUV to company -- as company cars. Mercedes, a premium brand, really strong brand in -- both in Sweden and in Europe, so we like it a lot.We had a discussion with Volvo. They terminated our contract in November last year. And what I can see today, let's say -- and see today, we have a really good dialogue with Volvo, both in Sweden and Norway.And when we acquire Mercedes, we have a new business area, trucks. Many, many years ago, around 20 years ago, we had Volvo trucks in the portfolio at that time. But now we acquire Mercedes, and we will start to sell trucks. It's a stable business. And we see really loyal customer, big Service Business, but we can see a lack of concepts and some processes. And if we can do what we have done in the passenger cars, the same in the Service Business for trucks, it can be really, really good.If we go to the total market, in Sweden, last year, it was close to 300,000 new cars registered. And this year, the forecast is 300,000. The first quarter is improvement of new cars into the market, but there is a discussion for the moment now. What will happen with the tax of company cars? The government will take a decision in the beginning of June. And maybe it will be a little bit cheaper for -- a little bit cheaper for exclusive cars. And for cheap cars, the tax for the driver will go up.So let us see what happened with the new car market in Sweden. In Norway, we sold 140,000 last year, and the forecast is the same level. It's a really good backlog for Bilia, our competitors or colleagues as well. So I guess it's a little bit low figure.In West Europe, there is no official forecast for the total market of new cars. But I guess, Germany, there is a lockdown for the moment, so it will be a weak new car market; Luxembourg, a little bit better; and Belgium, a little bit better if we compare to the last year.

[Kristina Franzen, Chief Financial Officer]

A few words about COVID-19, the pandemic, and what has happened during the quarter. We have actually had some COVID-19 restrictions, that meant closed facilities in all our countries with the exception of Sweden. It has been to a different extent in the different countries. And I think the overall assessment is that it has affected the business less than it did last year. For some of the countries and, for example, that the Sales Business was closed. However, we could still have customers into the facility on a one-to-one basis.Given the spreading of the virus, of course, safety for the customers as well as our personnel has been the highest priority, and we continue to learn how to develop those safety measures, all along the development of the pandemic, of course.When it comes to the cost aspect, we are still focusing on costs. However, we are also running the business on a more normalized level, what is less off compared to before is perhaps primarily travel, some educations and events where there is a lot of people gathered together.If we look at recruitment, we have increased the number of people compared to the year-end. But if you would compare with the same time last year, we're actually a little bit about 300 persons less in the group than we were 1 year ago.When it comes to financial support from governments for the pandemic, we have used that to a very limited extent during the third quarter. It's SEK 2 million and that's not been a positive or a lower cost compared to normal business. And those money was referring to Western Europe. So when if it comes to Sweden and Norway, there are no financial support from government at all included in the results. Per?

[Per Avander, CEO & MD]

Okay. If we are looking forward to quarter 2, we see we will have a good demand in the Service Business and still have a good demand for used cars, and a good demand for new cars in Norway and Luxembourg and Belgium. But what I said before, let us see what happens with the taxation system for company cars in Sweden in beginning of June. And after that, we can see better what happens with the demand for new cars in Sweden.Yes, Kristina, I think it was all from us now. And maybe we have some questions.

[Kristina Franzen, Chief Financial Officer]

Let's see. Is there any questions from anyone?

[Mika Karppinen, Research Analyst]

This is Mika from Handelsbanken. Can you hear me?

[Kristina Franzen, Chief Financial Officer]

Yes, we hear you, Mika.

[Per Avander, CEO & MD]

Yes. Yes.

[Mika Karppinen, Research Analyst]

Could you open up the situation in the used Car Business a bit more market-by-market? What kind of inventory levels do you have there? And then the sort of pricing environment in the used Car Business? Are the prices still on the rise? Or what's happening there?

[Kristina Franzen, Chief Financial Officer]

So inventory levels of used cars in different countries and the pricing position?

[Per Avander, CEO & MD]

Yes. We see the level of used car in our stock in a normal level. So we have a good situation. If you go back 1 quarter, we had a lack of used cars, and we were a little bit afraid. We have to less used car in the business. We see -- we have much more cars today in our outlet -- Bilia outlet, for other used cars. In Norway, we have a better situation as well. And we see the demand is really good.And often, in the spring, we have good demand for used cars because -- and I see this summer, a lot of inhabitants, both in Sweden, Norway, Belgium, Luxembourg. They will have holiday at home. So they will use their cars a lot in the summer, and then they invest for a newer car. So what we can see now, we will have a good demand, we will have a good margin as well in the used Car Business.

[Mika Karppinen, Research Analyst]

Something more about the pricing in the market, generally? Are the prices still up?

[Per Avander, CEO & MD]

We see -- we will have the same pricing as we have today and maybe the same level now in quarter 2. We are often afraid and see -- when we take some of the margin to have a high turnover rate, when we see in the total market is too much used car in the market, we don't like it. But now we see it's a normal market for our competitors as well. So it's a good level of pricing. It will be a good level of margin in quarter 2.

[Kristina Franzen, Chief Financial Officer]

Are there any other questions?

[Mats Liss, Equity Research Analyst]

Mats Liss, Kepler Cheuvreux. Just had a question about Norway there. I mean it's a very strong earnings performance in Norway. And I guess is it sort of boosted by the used car and new car deliveries? Or is it more that Norway had sort of come into another sort of situation that you have a structure now that...

[Per Avander, CEO & MD]

Yes. One reason is the cost side because you have, as Kristina said, less of education. We stopped a lot of projects. So the cost level maybe will increase a little bit in the rest of the year for Norway. And we have had a really strong situation. We launched, as I said, BMW i4 now, and we have a really good order taking of the car.We have launched pure electrical vehicles from Volvo. So we have a really good momentum, you can say, in the new Car Business, for the moment. And the Norwegian people, they invest a lot in cars for the moment in Norway. Instead to go to the South for holidays, they are standing in Norway. So it's not easy to say if we have this level the rest of the year.And the demand in the Service Business has been very strong as well. And one reason there is we had a contract now with Polestar. We don't sell Polestar in Norway. But we help them to deliver the cars, and we have a sort of, you can say, delivery service, and we sell accessories to the car, winter tyres and other accessories. So we had good -- we had employed more mechanics in the Norwegian business. This is one reason as well.So it's not easy to say we have -- we will have the same in the end of this year, the same level of profitability. I don't think so. When I talk about the cost side, I see we will increase a little bit there.

[Kristina Franzen, Chief Financial Officer]

And quarter-over-quarter, I think we had the Polestar services added on the second half of last year. Year-over-year, that will not make a difference by this -- by the end of the year.

[Mats Liss, Equity Research Analyst]

But Polestar, is that sort of a long-term contract for you? Or is it sort of year by year or...

[Per Avander, CEO & MD]

Yes. No, no. It's a normal contract as we have with all our brands. And why we're talking about it is we had -- if you remember, we had Ford in Økern, one of the biggest outlets we have in the middle of -- in city of Norway. And we closed down and terminated the contract for the sales and the workshop for Ford maybe 6 years ago. And there, we have opened up now. We payed the rent already, and we payed the heat, everything we are paying it, and we have employed some more mechanics. So it's a really good business for the moment.

[Kristina Franzen, Chief Financial Officer]

No extra fixed costs added. Yes.

[Per Avander, CEO & MD]

No, no. Yes.

[Kristina Franzen, Chief Financial Officer]

Yes, some smaller variables.

[Per Avander, CEO & MD]

Yes.

[Kristina Franzen, Chief Financial Officer]

Any other questions from anyone? Okay. If there are no other questions, I think we end here now. And if there is anything that comes up, you're, of course, welcome to contact either myself or Per Avander if there is anything we should clarify.

[Per Avander, CEO & MD]

Yes. Thank you very much and good bye.

[Kristina Franzen, Chief Financial Officer]

Thank you for this meeting. Have a nice day.