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Bilia AB
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Welcome you all to this telephone meeting about the third quarter result for the Bilia Group.My name is Kristina Franzen, and together with me, I have...
Per Avander, Managing Director for Bilia AB.
We -- I would like to ask you all to mute your phones while Per and myself will make a presentation, and that is to allow you all to hear us loud and clear. Okay.
Okay. We would like to start with highlights, as we have done before, and after that we can have Q&A. And I can start Kristina.
Yes.
And we report for Bilia Group result of SEK 402 million compared to SEK 280 million quarter 2 last year. SEK 75 million of the improvements comes from Norway, and I'll come back a little bit deeper about the Norwegian business.The margin for quarter 3 is 5.3% compared to the last year, 4.1%. For the third quarter it's the highest result in krona and in margin ever. We have 3 different business areas in Bilia. We have the Service Business, Car Business and Fuel Business. And today, we would like to concentrate us for Service and Cars.And if you go to the profitability, 60% of the profitability is coming from Service and 40% from the Car Business. If you go back 1 year, 2019, it was 75% of the profitability from the Service and 25% from the Car Business.And we start with the Service Business. We report a result of SEK 237 million compared to SEK 195 million last year. We have had strong demand, and we have had a lower cost for the quarter if we compare to the last year.The growth in the Service Business is really important in Bilia, and adjusted growth is 4%. 18% is coming from Norway because we have a contract for Polestar, the pure electrical vehicle. We don't sell Polestar. They sell them directly from the Oslo area in Norway, but the predelivery service before they deliver the car, we have workshops for that and the growth in Norway is really strong for the moment.In West Europe, we have minus 16% due to spare parts in Germany. We have had some contracts. So we have export spare parts for SEK 35 million the last year, but we don't have it this year. But it was not so good business. It was really, really seen margin in the spare part business in German -- Germany.We have 2 important areas in the Service Business, service subscriptions. And today, we have 118,000 subscriptions, and we grew a lot for the used Car Business. It's really important, because the loyal is much lower for a used car buyer. If you compare to the 1 year ago, we have increased 8,000. Tyre hotels is another really important area in Bilia. And the number of tires in our tyre hotels is 362,000. And we have growth since the last year of 40,000.These 2 areas is really important when we talk loyalty, because if we have service subscriptions and tyre hotels, we meet the customers 3x-4x per year. And often owner of a car they own the car 3, 4 years. We see the customer between 9x to 16x, and then we sell a new car again to the customer.The Car Business, we report result of SEK 169 million compared to SEK 86 million the last year. We have 2 areas here, new cars and used cars, and I'll start with the new car business. And we report SEK 32 million in profitability for this quarter compared to minus SEK 7 million last year.We have had 8% more deliveries of new cars for the quarter. And the order taking -- the underlying order taking, I would like to say, we have had a growth of 7%. Norway, we increased order taking with close to 50%, and in Sweden, we were at the same level as the last year.And for the quarter, the order taking in Sweden became better and better and we had a strong campaign and event in the end of September. It was a success for new car business in Sweden. So same level in Sweden. The backlog of new cars is the highest ever, 14,500 new cars. We have had a growth since 1st of January this year with 2,700 cars and if you go back 1 year, 1,600.And used cars, we report SEK 137 million compared to SEK 93 million the last year. And have in mind that the last year, it was a record quarter. The record before 1 year ago, it was around SEK 60 million. So it's a really, really strong used car business for the moment.We have had a good demand for used cars, and we delivered 7% more cars this year compared to 1 year ago. For the moment, we have a low stock of used cars both in Sweden and Norway, and sometimes we try to purchase more used cars. And in the other hand, we have the private leasing, and we take back often in the autumn a lot used car to Bilia.And I can always say that the used car business -- and we talk the stock level, often, you have a few cars in stock in August, but we deliver lot of new cars for quarter 3 and quarter 4. In some years we had too many used cars in stock in December. But the forecast for this year is we have a good level in the end of the year.Okay. I'll go over to you Kristina.
Few comments around cash flow. And for the third quarter, we had a strong operational cash flow amounting to a little bit about SEK 1.1 billion. It came primarily through a lower working capital, and of course from the strong result that we generated in the period.Throughout the third quarter, we have continued to have a strong focus on liquidity, however with a little bit of less cautiousness than we had during the second quarter where we were in the middle of the COVID-19 crisis. The strong cash flow has resulted in us having a receivable on our bank accounts amounting to SEK 1.9 billion, and we are not at all utilizing the available credit limits amounting to SEK 1.5 billion with our external banks.It also means that we do have a positive net debt of around SEK 600 million. And all in all, we have actually reduced the net debt by SEK 2.5 billion since the end of the year.One of our ratios that we measure and which also is a covenant towards the bank with an internal target of 2.2x is net debt in relation to EBITDA. And here, we are actually now on a minus 0.4x compared to 1.1x end of the year and 1.3x the last year.You should, however, bear in mind that in prior years, we have always paid a dividend to our shareholders, and that has not taken place in 2020 because of the restrictions related to COVID-19. So that, of course, has a positive impact on the receivables on the bank as well as the net debt. However, the strong cash flow in itself is one main contributor.So we have a very strong financial position. And I think I would even dare to say that we have probably never ever had such a strong financial position as we have here and now.
Okay. And really to Kristina maybe you're seeing acquisition. And we can see it's still a consolidation in the car industry for the future. And today, our manufacturers, they like it to see a consolidation with fewer owner of the contracts for each country.But we follow our acquisition and growth strategy. We have more acquisition in Sweden, Norway, more in Belgium, Luxembourg, but we have on hold for Germany. And we would like to acquire more of the brands we have, so we can take out a lot of synergies.But in quarter 2, it was not to -- not so easy to evaluate a company. So it was not so much negotiation for at that time. But now we can see little bit more interest of say, sell some companies. So it's one way we can use the money we have.Yes, and the total market for the rest of the year. In Sweden, we have an association, Bilia Sweden. They have a forecast, and they have adjusted forecast from 270,000 new cars, and they have increased it to 10,000 units for the rest of the year. For next year, there is a discussion around forecast of 300,000 to 305,000 new cars, and it's a rather good market for the Swedish business.In Norway, it's -- the Norwegian bank markets, they have a forecast of 100,000 new cars. I think it's a little bit low. I guess, it will be around 110,000 to 120,000 new cars. And in West Europe, there is not an official forecast. But for the different markets there we are now, I guess, it will be around 15% to 30% less registered cars in our markets.Yes, Kristina?
[ Jon ], I mean, the year has been very different with the COVID-19 spreading. And for the second quarter, we had a large impact on our day-to-day business from the spreading of the virus.During the third quarter, we have seen some signs of normalization and also stabilization in this situation. That means that all our 136 facilities have been fully opened during the third quarter as normal. We have, however, continued to have safety as the #1 priority, both in terms for our customer, but also for our coworkers in Bilia.It means that we are continuing to use safety equipment when we take care of the cars. It also means that we have used gloves and masks in those countries, of course, where it is required, but also when there has been an additional safety impact from wearing that type of equipment.Cost has also been one focus that we put into action during the second quarter. We have continued to have focus on cost also during the third quarter, but on a more normalized level compared to the second quarter.If you look at our number of employees, we were actually 390 persons less by the end of the third quarter if you compared with the end of last year. And that means, however, we have actually started to make recruitment during the end of the third quarter and also continue to make recruitments in the beginning of the fourth quarter.We have -- as all facilities have been opened during the fourth quarter, we have had most of our people actually at work as normal. That means that we have used the government support for having people working part-time to a very limited extent. Very few people have actually been working part-time on those government support programs.Where it's been used, has been primarily in Western Europe. And when it comes to the financial results, we have SEK 5 million of those type of government support into our earnings. Out of those SEK 5 million, SEK 4 million comes from Western Europe and SEK 1 million come from Norway. There are no financial supports included in the results coming from the Swedish operations.As we said for the second quarter release, we have applied for government support amounting to SEK 5 million for people working part-time. But as those have not been formally approved by the government, we have not yet reflected them in our financial results.For the second quarter, we have an impact of SEK 6 million in addition to the short time working coming from Norway, which is lower social charges that is valid for all Norwegian companies. So in total, for COVID-19 support, there is SEK 11 million in the financial results that we have reported. Per?
Okay. If we are looking forward to quarter 4 this year and quarter 1 next year, so we never give a forecast. But if I would like to give some guidelines, and it's not easy for the moment, I'm really humble for the future. It happens a lot in both Sweden, Norway and in West Europe when we are talking about COVID-19 for the moment.But now in October, we can see the demand for used car is still good, and the demand for the Service Business is still good. So -- but it's not easy to have a guideline for the future. It happens a lot for the moment.So with that, we are finished, and maybe we can have some questions. Feel free.
If there are any questions there?
This is Mika from Handelsbanken. Can you hear me?
Yes.
Yes, we hear you Mika.
Concerning used car business, you also mentioned in your comments there was private leasing expiries. Are those expiries increasing year-on-year in the coming quarters? And then how big part of those private leasing deals are of your sort of used car volumes normally, some kind of range estimate?
How -- do you say, how many private leasing we take back of the total sales of the used cars --
Yes. And are they clearly increasing compared to the previous year, so what kind of growth --
Yes.
So how important -- important that's for used car supply going forward?
I think one comment is, yes, that we have a pattern when it comes to the returns of the private leasing cars and that is that they normally come by the end of the third quarter and the beginning of the fourth quarter. So it's clearly autumn related timing wise. So, of course, from that aspect, they come very conveniently back to us now during the third and the fourth quarter.
Yes. And if you talk about numbers of private leasing we take back, and we sell yearly around 50,000 used cars. I guess, 8,000 to 10,000 can be private leased cars from the beginning.
Yes, something like that.
Yes, not more. And why we are taking them back in quarter 3 and quarter 4 is that, often our manufacturers they change year model in the summer, and we start to deliver out the new car in quarter 3 and quarter 4. And then we take them back after 3 years. It's the normal.
And Mika, we actually got a similar question in the other call we had on Swedish, where we got the question, do we believe our inventory of used cost is on a too low level to be able to handle the sort of demand for used cars going forward? Is that a little bit your question as well?
Yes, exactly, exactly. And then sort of still one sort of question of how you're seeing the sort of the pricing environment with used cars?
Yes. Yes. We can see for the moment, we have to purchase and pay little bit more when we purchase used cars now. But we are careful and follow close to market, because it change -- one day it change. It's my fourth crisis, if you say corona is a crisis. And if I looking back, the other -- that often, we can see the private person stop to buy a new car and instead buy a used car. And then after a while, it's a lack of used cars models and the price and the margin is going up and there we are now.But when you are closed to new car, they stop to buy the used cars. We have to be really careful. So we can't increase the price. One day we are too close the new car and the customer instead to buy a used buy a new one and then we have a more normal market. So we can say we have a peak for the moment now. But we try to purchase a lot of cars, and we like to have private leasing. We did receive good value for the moment. And we changed a lot of demonstration cars and company cars for our employees for the moment. So we try different ways find more used cars. And we have a close cooperation with the manufacturers, because they have often a lot of used cars as well. So we think we have many, many different ways to find used cars.But we had the other question in the other conference call we had, and we say it's a better situation to have -- to low stock of used cars compared to too much. If you remember, quarter 4 last year, we said we had too much cars in Norway, and we don't like the situation. We have to sell-out them, because the turnover rate of 10x per year is a really important key figure for Bilia, and there often we take it in the margin.
So to have a fresh inventory that is one of our key strategies.
Thank you.
Are there any other questions?
If there's no other question I can continue. It's sort of still Mika.
Yes.
Sort of this record high new car order backlog, what kind of delivery times you have those cars? Is the sort of the delivery times really long? So are those volumes mainly taking place in the latter half of next year or what's the situation?
It depends on when we talk pure electrical vehicles, often a long delivery time. And in Norway in the Oslo area, 60% of all new car registrations for the moment now is pure electrical vehicles. And we have the double of backlog in Norway of new cars. So we don't see we will deliver them in quarter 4. I guess, more quarter 1 and quarter 2 next year.Plug-in hybrids, we have had some complications with BMW with the batteries for a while. So it's a long delivery time for plug-in hybrids when we talk BMW as well. So in your forecast, don't think we will deliver most of the backlog in quarter 4. But it is a forecast from us, so more a normal quarter in quarter 4.
Mats Liss, Kepler Cheuvreux. A follow-up there on Mika's question, I guess. For the fourth quarter now, I guess, it's normally a seasonally strongest of the year. And now you sort of indicated that backlog is sort of longer than normal. But do you feel it's difficult to make the fourth quarter the strongest of the year? Or is the third quarter tough competitor?
We have respect for the profitability we had last year in quarter 4. And as I said, we are little bit humble what will happen with corona. Here about we have one outlet now in Germany, we had corona. And we have had one in Sweden as well, with corona, closed down for some days -- only some days. So I'm little bit afraid what can happen with the corona in quarter 4.But as you said, Mats, quarter 4 often is the best quarter. We had some bonus -- yearly bonus we put in quarter 4 often. But it's not easy this year to say it's a little bit too early for the moment. Have you some comments, Kristina?
No, I think we are normally careful to make forecast. And in years like this, of course, you tend to be even a little bit more cautious in terms of external factors that it's a little bit out of our influence.
Yes.
Yes. But it is a very high order stock rate, and we know that some of the cars will come into the first and the second quarter. While for the time being, we don't see that we will have much lower deliveries of new cars on the other hand, there is than last year, right? So let's see. But it's a long period. It feels even longer in this time.
Yes.
And then, well, you mentioned the strong financial position. And I guess you are normally a good dividend provider. And, I guess, you also talk about your potential growing through acquisitions and, I guess, that's good also. But if there are any sort of big opportunity out there that makes you sort of hold back on dividends do you think or is it more coming back to a normal situation next year? How should we view that?
I think the question about the dividend is, of course, for the Board. And I would say that given the COVID restrictions and where we are right now, it's not likely that there will be a decision about any dividend before the February release for the full year. So that is probably where it would sort of be a decision or proposal from the Board on dividends going forward. I guess, that is what we can say, yes.
Yes, for the moment, yes.
Yes.
And the potential acquisition opportunities out there, are they sort of, well, bolt-on or midsized or are there sort of any larger ones out there that you, well, could gear up fully to...
Yes, I think we look at acquisitions, I mean, throughout the periods, and I think it's a little bit normalized period now with perhaps a little bit more discussion with potentials than it was during the second quarter, which was influenced by the COVID-19. And there is, of course, a spread among those from smaller to a little bit and so -- but we cannot --
But too small, we often say no in our acquisition strategy. We are running better little bit midsized and bigger dealers, which can take out lot of synergies, so we are looking for more bigger or midsized companies instead small one. And that's a trend we can see. Often the smallest dealers, they can't sell their business, because there is no taker of it and for the moment we can see often a turnover under SEK 100 million.
And currently, you have, I mean, 4 brands or is it 5? Yes. Do you feel that's good enough? Or do you see an opportunity to add another --
We have really respect for taking a new brand. And we say often, if we take in a new brand, as we did with Toyota, 5, 6 years ago, we'd say we will be at least in Sweden, Norway, 15% of the total sales in the country when we talk Sweden and Norway. So we think we have a really good portfolio with 3 clusters of brand, BMW, MINI, Toyota, Lexus and Volvo, Renault. But it can be some more, but we have huge respect to take in another brand, because everything is different between the brands. So -- and we often say we would like to have standalone sites as well. So if you take in a new brand, we don't have so much synergies, maybe some of payrolls and IT like this, but --
Finance.
Finance, maybe, Kristina, yes.
But it's less, of course, in Sweden.
Yes. So more focused on more of the same brands we have I can say. Thank you.
Are there any other questions? Perhaps [ finished ] as mentioned, then we got one question about the Norwegian increase in the service market. Whether or not that would be a more temporary increase or something that is more long term?And I think there, we -- your answer was, Per, that it was a little bit of both. It is a long-term agreement where we will prepare the cars -- the Polestar cars for delivery to the customers. However, for the third quarter, as it was a new car being released, the volumes might have been a little bit on the high side compared to the volumes going forward.
Yes, it was a peak. They delivered a lot of cars.
Yes, initially. But it's a long-term contract that is added to the Norwegian service business. So they will take -- prepare the Polestar cars going forward. But the level of cars might have been a little bit more on the high side compared to Q4.
Okay. Any more questions?
So if there are no other questions, I think we would end here and now. And if there is anyone that would have additional questions afterwards, you're, of course, most welcome to contact myself or Per, and we will try to answer you on those as well.
Thank you very much, and bye-bye.
Thank you for listening in. Have a nice day. Bye-bye.