Bilia AB

STO:BILI A

Earnings Call Transcript 2022-Q1

[Operator]

Ladies and gentlemen, welcome to the Bilia audiocast conference Q1 2022. [Operator Instructions] Today, I am pleased to present Per Avander, CEO; and Kristina Franzen, CFO; and Carl Ewetz. Please go ahead with your meeting.

[Carl Fredrik Ewetz, executive]

Thank you very much, and good afternoon, everyone, welcome to Bilia's, the first quarter presentation. And we can go to the next slide, which should be the agenda. And we are starting with market trends. We will briefly go through the Q1 results and then dig deeper into the service business and car business that will be done by our CEO, Per Avander. Then we will move to the financial position and M&A with Kristina Franzen and Per Avander will then continue and finish off with an outlook for Q2 and then obviously, Q&A then. So I give the words to Per Avander, CEO.

[Per Avander, executive]

Thank you very much. And we start with Slide #3, Market Trends. The first point, electrical cars. Norway is in a class for themselves. The first quarter of all sold cars, it was 83% pure electrical vehicles. The government, they have a target of zero diesel and petrol engines 2025. And I guess they will achieve the target. Sweden, we see 60% all fuel cars in quarter 1 is pure electrical vehicles, hybrids and plug-in hybrids. And with a market share of 60% battery cars, Sweden is #3 in Europe. And it's a huge improvement the last year.

Consolidation. All manufacturers in Europe work for larger clusters in Europe. One example is BMW in Sweden. If you go back 10 years ago, we were around 20 different dealers. And today we are only 8. So the big car dealers getting bigger. And when the manufacturers like to see clusters, bigger dealers, there is a lot of opportunities for acquisition, both in Sweden, Norway and in Western Europe.

Business models. For the moment, there are many tests in the car industry. One can be subscription and another is car sharing. I remember in Sweden, both Mercedes and BMW with Car-To-Go and Ride Now. They tried in Sweden, but they left Sweden a couple of years ago.

Online, all manufacturing talk about online sales, private lease and agent model. One of our brand today, Mercedes Benz, they have a pilot for an agent model in Sweden. So we follow it close. Please move to the next slide.

Yes, Bilia Group result. We report an operating profit of SEK 500 million compared to SEK 528 million the last year. It is the second best quarter 1 ever. The margin was a little bit better, 5.8% compared to 5.6%.

Number 3 here on the slide, you can see divestment of 4 facilities in Sweden. It was the first of February in the middle of Sweden, Skaraborg and you can say -- you can call it headquarter [indiscernible]. We sold our business to a family company, Volvo dealer.

Please go to the next slide.

[Kristina Franzén, executive]

Remember we're on Slide #6, right?

[Per Avander, executive]

Yes. On the right-hand side, you can see the historical perspective result. If we go back from 2017, 2020, so you can see the quarter we have now is around double in profitability. So it's a really, really strong profitability quarter 1 2022. Sweden, in line with the last year. Norway below last year, but I'll come back to that later on here because it's a strong quarter 1 results in Norway.

Western Europe, a little bit better.

Please go to the Slide 7. Sweden, continued high margin, 6.2%, the same as the last quarter 1 year ago. We have higher earnings in the Service Business, SEK 8 million better, and despite the COVID restrictions we had in the beginning of this year. I will come back to that later on. The used car, the demand for the used car in Sweden still really good. And we have a good margin.

Okay. We go to the next slide, 8, Norway. If you look at the right-hand side here, see SEK 151 million in 2022. And compared to 2017 to 2020, you can see that profitability is really, really good. It's a fantastic result. We have a little bit lower earnings in the Service Business. And we dropped in the organic growth in the Service Business as well, because we had a peak in the end of 2020 and the first quarter 2021 in Norway when we started to help Polestar to predelivery service and we delivered a lot of cars for them. And it was a peak. Now it's much more normalized. So I guess, quarter 2 will be in the same level as the last year.

Yes, we go to the next slide, please. Western Europe. We improved the earnings primarily due to divested operations in Germany. We had huge losses in Germany due to the bad conditions to sell new cars. It's a really tough competition with, you can call them, competitor or colleagues, other BMW and Mini dealers in Germany. The third one here at the slide, strong position for BMW in Luxembourg and Belgium 2021. In Belgium, BMW when we talk market shares and ranking leads, we're #1. And in Luxembourg, often top 2, top 3 in the ranking for market share. So BMW has a really, really good position in both Luxembourg and Belgium.

Please go to the Slide 11. Service Business. We had strong earnings in the same level as the last year despite the COVID restrictions. In Sweden, in January, 25% of all mechanics or technicians they were sick. So the production was 25% less in January. In Norway, the figure was 17%. So with that, bear in mind, you can see we have had a good profitability in quarter 1. As I said, in the past here, Polestar cars affect us a lot in Norway. So the underlying turnover was minus 14%. But Sweden and Western Europe had a positive underlying turnover of 1% and 5%. In the historical perspective, we had a really, really good quarter here. If you go to order intake, the demand for new cars were remained at a good level and they increased 7%. And the backlog is over 27,000 new cars. And it's around double if we compare to 1 year ago.

Used cars in Norway, we had a little bit too many cars in the end of the last year. So our focus has been to have a high turnover rate with a little bit lower margin. But now we are in a good shape for the quarter 2 in Norway as well. Please go to the Slide 16.

[Kristina Franzén, executive]

And then we are into the financial position for the quarter and a good result together with the continued control of working capital elements that we had a really good operating cash flow, SEK 348 million were generated compared to a negative cash flow of SEK 100 million last year.

On top of that, we also got proceeds from divestments of the operations in Sweden and Germany that Per talked about earlier on, which meant that we have had an additional SEK 420 million added.

All in all, it meant that we had a decrease of our net debt by around SEK 400 million, and the net debt now amounts to SEK 166 million compared to SEK 582 million last year. And then we should bear in mind that we have also made buyback of shares amounting to SEK 238 million in the quarter. The buybacks are part of an ongoing program where we intend to buy back 1.1 million shares as a way to buy back shares. That means that the net debt/EBITDA now at 0.1x, and that is versus the target we have of 2.0x.

So all in all, we continue to have a very strong financial position. It also ends up with available funds at our banks of a little bit above SEK 800 million, and available credit limits of SEK 1.5 billion that we are not using at all. Then as you have seen at the AGM, it was decided that it will be a dividend of SEK 8 per share to be paid out, and it will be paid out by a few shares per time on a quarterly basis, which means that we have made the first payment now during April. So continued good financial position.

And that if we go to the next slide, Slide #17, and then to Slide #18. It also means that we have available funds for continuing our M&A operations. And during the first quarter, we have added 2 companies into the group, the first being LB's Lastbilar in Sweden, which is a sales and service workshop for Mercedes trucks. It is located in Norrköping and we believe this is a very good complement to our newly acquired Mercedes business and also then adding service capabilities for us. So we are very happy about that. The second company that we added to the group is the company that we announced yesterday. It is a company in Germany -- in Norway, Kokstad AutoSenter that is then selling used cars and also having an independent workshop. So we are also very happy to welcome them into the Bilia family.

During last year, we acquired 6 different operations and we are now continuing the integration into the Bilia family of those. We had some different type of acquisition. I mean, it was adding an expansion of our current Toyota brand in Norway. We also added 2 new more brands into the Bilia family: Mercedes and Porsche. We also got together with the Mercedes business, the truck business, which was new to us. And on top of that, we made 2 acquisitions regarding tire and rim repairs. And those are the 2 that you see on the slide as well then. So very happy to add new operations into Bilia. And as Per said earlier on, there is also opportunities in the market, which we of course continue to have a close look at going forward.

So Per with that, I think I hand over to you and we move to the next slide.

[Per Avander, executive]

Slide 20, please. Forecast for quarter 2. We see we will have a good demand for service in all our regions. And if you go to the next slide, 21. We try to explain the slide, the blue line is 2021 and the red is 2016. What I will say here, 0 to 6 years old cars today, the first and second owner of the car, the most loyal customer we have and then it was 2016 and back 6 years. So here you can see how many cars we have in our areas. The first slide here is Sweden, we have 4% more Volvo cars. BMW 11%, Toyota 22% and on the right-hand side you can see Mercedes 48%. So we have had really good years when we talk total market on new cars. So you can see we have a lot of cars in our markets.

Please, if we go to 22 -- Slide 22. The same in Norway, Volvo cars in the same level. BMW, they have increased the market shares many years now. So we have 33% more newer BMW cars in the market in Norway. And we have flat when we talk Toyota. So we see we will have a good demand for quarter 2 and for the rest of the year.

Please go to the Slide 23. Yes. We talk about new cars and the shortage of semiconductors and other components. We see we have long delivery times, for some different models up to 9 to 12 months. So for used cars, we will see the demand will be very good, but we have a lack of models and we have too low inventories in same -- in different showrooms in Bilia. So our priority now is to try to change some of the sales people we have [indiscernible] to purchase in car directly from [indiscernible] in Norway. So we try to find more used cars. So that can be a problem. But still a very good margin for quarter 2.

And what I started with, electrical vehicles, we see it will increase every month in the future. And what I said in the beginning in Norway, I guess the government will achieve the target ahead of zero petrol and diesel engines 2025.

With that, it was all from Kristina, Carl Fredrik and I. So please, let's move to Q&A, operator.

[Operator]

[Operator Instructions] We already have one question coming from Mats Liss from Kepler Cheuvreux.

[Mats Liss, analyst]

Congrats on a good quarter. And I had a couple of questions. First, I mean, you have seen quite a dramatic increase in fuel prices here due to different reasons. And still you are -- seem to be confident about the service outlook for the second quarter and also the demand for used cars. And so -- yes, so it seems that this is nothing that sort of changed the overall picture. Could you shed some more color on that?

[Per Avander, executive]

Yes. You mean if the customer will be careful on driving so much cars in the future. We can't see it. We had a drop in February in Norway when the diesel and petrol price increased a lot. It was only a couple of weeks. But after that, it was normalized again. We could see in the Norwegian market. And still, the customer, they like to buy petrol and diesel engines. So what we can see today, it hasn't affected us so much with the diesel and petrol price.

[Mats Liss, analyst]

Okay. Great. Secondly, about the second quarter, I guess, normally, it's a strong service quarter ahead of the driving season, and it seems to be the same situation this year. And you also indicated in Norway, you see a strong quarter. And I guess we have already had the Easter impact. So we shouldn't be too worried about that, is that right?

[Per Avander, executive]

Yes, yes. And often the customer they change their tires in the beginning of April. So as you said, Mats, quarter 2 is a strong quarter. But if we go back some years, also we deliver a lot of new cars in quarter 2. But this year, we don't see it in our forecast for new cars to deliver a lot because some of our bigger outlets, where we have we call it internal delivery workshops, only internal workshop for new and used cars, they have not so much to do. It's nice to have a really high backlog, but there is no money before we deliver the cars. So we hope we can start doing quarter 3 and quarter 4 to deliver a lot of new cars. So therefore, a little bit worse when we talk delivery workshops.

[Mats Liss, analyst]

It sounds as if, well, you expect the orders -- order backlog to increase during the second quarter. That means the lead times are still sort of a problem and production and is...

[Per Avander, executive]

Yes. But bear in mind that you have a lot of inflation and it's the same for us when we talk new cars. And maybe you have seen it in the newspapers, Volvo, they changed the price with SEK 20,000 to SEK 30,000 now. And all other manufacturers they follow. So we have a little bit higher new price for our cars. So it's same for our competitors, but maybe order intake will be little bit lower now if you compare it to quarter 1.

[Kristina Franzén, executive]

But the deliveries we expect to be lower, Mats, if that was part of your question as well.

[Per Avander, executive]

Yes. Yes. The question was if we've increased the backlog. Yes.

[Carl Fredrik Ewetz, executive]

And Mats, coming back to your first question there with the high fuel prices, obviously, that potentially would speed up the transition into electrical cars or the demand for that.

[Mats Liss, analyst]

Yes, good. And -- but the mix there in the order backlog, is it sort of -- could you say something there? Is it, well, a large, small mix? Is there -- is it -- well, something to say about that. I mean the pricing in the order backlog. And maybe also, do you see any risk now when lead times be extended that you -- could you see cancellations coming?

[Per Avander, executive]

Yes. No, we don't see it. Twice per month, I and our Deputy Managing Director, we have meetings with the subsidiary company's managing directors in Sweden and listen really, really careful if we have a cancellation, but we can't see it yet. So the customer they wait for their cars. And our salesmen, they try to be -- call the customer earlier now if you have a private lease or a company lease contract. In the past, we called the customer 3 months before the end of the contract. But today, we call them between 6 to 12 months before the end of the contract.

So -- and the mix, in Norway, all customers they like to see brand-new models and brand-new cars. So when we launch i4, for instance, in Norway BMW car, pure electric, we sell a lot of the car. So there you can see the mix there. We can see a lot of BMW cars, a lot of Toyota cars. Because now they have launched a pure electrical vehicle in Norway. In Sweden, I can see the normal market share you can see; not today because today you can have a high market share because you can deliver cars. But if you go back before the shortage of semiconductors. So I guess our backlog of new cars is the same, I can say. So if we have 8% market share in Sweden for Toyota it's the same if you compare it to Volvo and BMW. But a little bit more electrical vehicles, if you go back 1 year. So much more -- and the price for pure electric vehicle is much higher. So the transaction price is a little bit higher, again.

[Mats Liss, analyst]

Great. You mentioned that Volvo sort of and others increased new car prices now. And should we expect that to support used car prices also? Or is it sort of, I mean, some indications that they are sort of easing off some of the used car prices, but...

[Per Avander, executive]

If I remember right, I think I have said the last quarter and the quarter before that, that I think we peak now the price. So we can't see increasing price of used cars. But we can be at the same level in quarter 2, quarter 3, quarter 4 but I don't think higher price.

[Kristina Franzén, executive]

It could perhaps possibly. That's what you had in mind, Mats, right, if there are higher prices on new cars. It might mean that the used become more attractive [indiscernible]. If that is what you have had in mind.

[Mats Liss, analyst]

Yes. I guess because these new car price increases have come quite recently, I guess, or gradually. Yes.

[Kristina Franzén, executive]

Yes. They are.

[Mats Liss, analyst]

Great. Okay. And then, I mean you mentioned the opportunities there in commercial vehicles and trucks. And I guess, Mercedes is a brand you sort of work with there? Is it more to come during this year? Or are you still in a sort of, not test phase, but you will sort of get ready for more? How should we see that trend?

[Per Avander, executive]

Yes. The truck business is not a test for us because we see we have an outlet in Luleå, in Umeå and Örnsköldsvik and we have different outlets in Stockholm, and now we acquired one in Norrköping. So we -- so our strategy now is to be really big in the truck business. And our competitors, Scania and Volvo Trucks, they have a better network when we talk service points in Sweden. And we will see what we can do there because it's far between Umeå and Luleå. So maybe we can -- if we can fix some points for some service that is key for a truck customer to have a network of service points. So we like the business and we will grow with the Mercedes trucks in the future.

[Operator]

[Operator Instructions] We have another question from Andreas Lundberg from SEB.

[Andreas Lundberg, analyst]

If I start with the divested units you have some remaining there to be sold, to be divested here later this year. Would you expect similar price tags for those remaining units? That's my first question.

[Kristina Franzén, executive]

I think the operations that we are divesting are different sizes, right? So I think the one that we now divested during the first quarter were sort of the largest one, in that sense. So if I should give any guidance, I think perhaps a little bit of smaller price tag because they are smaller operations, in that sense.

[Andreas Lundberg, analyst]

Got it. And then a question on your Service Business, which you said suffered a lot from the sick leaves, COVID and so forth and also the lower deliveries on new cars. But it still seems that the Service Business was kind of healthy. So could you maybe give some color on the underlying improvement or -- yes, that's the question.

[Kristina Franzén, executive]

Let's see if I followed your question, Andreas. You meant, was the -- if we had some problems, what was -- how is the business in general conducting.

[Andreas Lundberg, analyst]

I said the business is fine and then what's the reason behind that.

[Kristina Franzén, executive]

Okay.

[Per Avander, executive]

Yes. As I said that we have some delivery workshops. They are not full in Sweden and Norway because we have a lack of new cars. And if we have a lack of new -- don't deliver so many new cars, we don't get back so many used cars. So we miss a lot of job there, what I can see. But if you go to body and paint shops, it's really good business still. So what we see the rest of our business, call it underlying business, take off the delivery and workshops, the rest of the business is growing very well for the moment what we can see, and the forecast for the next quarter is the same.

[Kristina Franzén, executive]

And we continue to work with the newly acquired ones, right, to see how we can get them into the Bilia concepts and the way we are -- with our business excellence team. So that's one way to have further improvement.

[Andreas Lundberg, analyst]

And what's the status there on the integration work of your last year acquisitions?

[Per Avander, executive]

Yes, we don't have the same figures when we talk to Service Business. So now our, we call it, business excellence team traveling around and help the workshops manager of each outlet we have in Sweden for the moment. So we started integration. And if you remember, we took over the Mercedes-Benz business first of July last year. So it's only 9 months now. So it's little bit too early, but we have a lot to do, we can see. And what I had said before that we like when we acquire a company when they have some trouble and problem with used cars and workshops, because it's our own business. So we help them a lot for the moment and then we will increase the profitability.

[Kristina Franzén, executive]

But we are still in the learning and understanding, I would say, right, rather than the harvesting phase.

[Andreas Lundberg, analyst]

Got it. And then you -- sorry, go ahead.

[Per Avander, executive]

And when we talk about Service Business, we have a Capital Markets Day and there we will -- we have a sort of survey for pure electrical vehicles in the workshop. So I'd like to announce it here today. We have a sort of deep dive in Norway with 1,000 petrol engines compared to 1,000 pure electrical vehicles and see what happened in the workshops. So it can be maybe an interesting meeting.

[Andreas Lundberg, analyst]

And on the future M&A side, I mean, in the past, you have mainly been acquiring similar units that you already have. How do you think you will allocate M&A capital from here?

[Kristina Franzén, executive]

No. I guess we can't say exactly how it looks like, right? But of course, we would like to grow with our current brands in our current markets. But as we have said before, we would also have an interest to add another brand, right, and also look at more closely related businesses to our day-to-day business, right?

[Per Avander, executive]

Moreover, we have -- if you remember, we acquired last year a tire company in South Sweden with 2 outlets. We will acquire more tire business. We acquired rim repair in Norway. We will acquire more or try to open up more of rim repair. And recycling plants, we are really satisfied with our business in Sweden with the outlets for recycling. So there we will grow as well. So it's only retail business we can acquire more of other business as well. We call it the independent business.

[Kristina Franzén, executive]

Yes. If you look at the wheel, we have [indiscernible] and see how we can add attractive offers there that will be to the customers. So that we're working on. Adding more things there, that would be good.

[Andreas Lundberg, analyst]

And lastly, on your financials or your buybacks perhaps. Did you say there remains 1.1 million shares to be repurchased?

[Kristina Franzén, executive]

No, not really, right? I said that the program that we are running now is 1.1 million and then we have bought back part of that, right. So I think right now, I think we have bought back -- and now I'm not [indiscernible] but rather as of yesterday we bought back around 300, I think, out of those. We publish that every week, so you can see how the buybacks are progressing.

[Andreas Lundberg, analyst]

For a potential new program you need a mandate from the shareholders, right?

[Kristina Franzén, executive]

Yes, we do have a mandate from the AGM and that then requires the Board approval to utilize that mandate. So it's a Board decision of course and not the management.

[Andreas Lundberg, analyst]

On top of this is 1.1 million or...?

[Kristina Franzén, executive]

The 1.1 million is decided by the Board and is ongoing. So any buybacks on top of those would require a Board approval -- or Board decision, sorry. Board decision, of course.

[Operator]

[Operator Instructions] And we have another question coming from Mats Liss again from Kepler Cheuvreux.

[Mats Liss, analyst]

Just a follow-up for what -- on the West European performance there in the first quarter, it was quite -- well, as you mentioned you have exited Germany. And besides that, this is the normal level for the remaining business. Is that right?

[Per Avander, executive]

We can say in the last year, we had operating margin around 4% in Luxembourg and Belgium together. But be a little bit careful when you look at the figures for the Service Business, some quarter we can have a sort of a bonus for spare parts from our manufacturers. So it can go little bit up, a little bit down sometimes. But as I said, we had a huge loss we see in Germany and now we're taking off them. So we will show a better figure if you look back some years. But last year, if I give you a direction, 4% we had in operating margin, if I remember right.

[Kristina Franzén, executive]

Yes, it was. And I think that was also we commented on in the fourth quarter there. And now we're a little bit ahead of that in the first quarter. So that is a little bit on the hindsight going forward, I think. 4% would be more of the ongoing business normalized yet.

[Mats Liss, analyst]

Then, I mean, you talked a little bit about the recycling business and it's performing well. Is there any sort of impact there of strained supply chains and the sort of component supply overall that this becomes a more important part of your business?

[Per Avander, executive]

No, no, we don't change from -- we have lack of components in our warehouse for spare parts. So that we can't see in the figures here. We think that the business is really stable and really good with our 3 recycling plants we have today. And when you talk sustainability, we see we can put in more of, what you call it, used spare parts in the future into our workshops, both when we talk body and service workshops. So I think we are a little bit early into the business and I guess it will increase in the future when we are talking sustainability.

[Kristina Franzén, executive]

And I think as Per said, so far, we have not had any disturbances in terms of supplier of spare parts into the service workshop because if there would be disturbances, I guess part of the used spare parts could [indiscernible].

[Per Avander, executive]

But not today.

[Kristina Franzén, executive]

But we have not seen any shortage, yes.

[Operator]

[Operator Instructions] Well, it seems that there were no further questions.

[Carl Fredrik Ewetz, executive]

All right. Thank you very much for listening to our Q1 presentation. Thank you very much.

[Per Avander, executive]

Thank you very much.

[Kristina Franzén, executive]

Thank you.