Kamux Oyj (KAMUX) Earnings Call Transcript

Good morning. My name is Katariina Hietaranta, and I would like to welcome you to Kamux's Quarter 2 Results Webcast. Our CEO, Juha Kalliokoski; and CFO, Enel Sintonen, shall present the results first after which we shall have a Q&A session. For the Q&A, we shall first take questions via the teleconference and then move over to the chat line in the webcast. Please go ahead, Juha.

Let's get started. Here is our agenda for today. As usual, we will begin with an overview of the quarter, can take a look at the market development before looking at each operating country separately. Then Enel will present our financial development in more detail. And as usual, we will finish with the Q&A session. There was a significant shift in demand between our trends in Q2 affecting especially demand of diesel cars. In this situation, we focused on inventory turn. We were able to grow both the number of cars sold and revenue while the market declined in all operating countries. However, very tightened as the selling prices of diesel cars decreased due to the low demand. This led to gross margin decreasing from EUR 24 million to EUR 20.8 million, mainly due to the loss [indiscernible] . Our cost by EUR 0.8 million lower. This was not enough to keep the adjusted EBIT at the last year level, and it decreased to EUR 0.6 million. Revenue from integrated services was at EUR 12.8 million, which is 5.8% of total revenue. Our customer satisfaction was again and at an excellent level. NPS for the whole group was 66% in the quarter. Towards the end of the quarter, consumer confidence started to improve. However, this was not yet visible in used car sales. The used car market conducted during Q2 in all our operating countries. Sweden was down by 1.4% and Germany by 3.2%. In Finland, the total market was down by 2.4% for the quarter. Within the quarter, especially May was very, very challenging. In Finland, the market declined 7.2%. The good news of the quarter was that we reclaimed our position as the largest seller of used cars in Finland in terms of number of cars sold. This applies to both to the quarter and the first half of the year. In Sweden, despite the difficult market, our volumes grew, and we gained some share and in Germany, where the market also contracted our share remains small. In terms of new car registrations, the number of new car registered across Europe grew by 5.7% during the first half of the year. There were some changes in the showroom network during the quarter. We decided to tighten our showroom network in Germany and closed 2 showrooms in the Hamburg area. Ahrensburg and Stade were closed at the end of June. The cars and salespeople from these showrooms moved to the Nedderfeld showroom. There were no changes in the network in Finland and Sweden. We alert our network continuously to check it against current and future capacity needs. Thanks for the short-term nature of our lease agreements we are able to make changes in the network relatively flexible. Now we will look at each country in turn. In Finland, the number of cars sold during Q2 was at last year level. Average prices were slightly lower and therefore, revenue decreased 1.4%. Our focus was ensuring sufficient inventory turn. The weakened demand of diesel cars had a significant impact on sales prices and TAS margins. We are not satisfied with the penetration rates of integrated services, which have decreased. The penetration rates for integrated services decreased. Customer satisfaction on the other hand, is an area where we continue to do well. In Finland, NPS for the quarter was 68 and for the month of June, it was as high as 170. Here are some recent examples of our marketing activities in Finland. At the end of May, we had an advert on the front page of Helsingin Sanomat, telling about the high net promoter score and recommendations we had received in Finland. Kamux Finland has also been the official advertising partner for MTV's world rally championship broadcast. This partnership included a strong presence at the World Rally Championship event in Jyväskylä with Kamux branded vehicles. In Sweden, our performance was relatively good, and we are getting back on track. However, there is still a lot to do. The Swedish market also contracted and competition remained tight. The Swedish krona declined during the quarter, impacting sourcing inside the Swedish market negatively. We were able to grow, however, and the number of cars sold increased significantly, getting closer to 2024 figures. There were headwinds with the declining demand of diesel cars in Sweden as in all our markets. However, thanks to the volume increase, external revenue grew by 40% and and gross margin also grew. Penetration rates of insurance services and Kamux Plus improved. Niklas Eriksson has now been heading the team in Sweden since early April, and it has been good to see how he has taken ownership of the business. And the team is working well together. In Germany, we continue to have challenges. However, we continue to focus on inventory management, and operational execution. The market contracted also in Germany. The headwinds against demand and pricing of diesel cars affected our thermal business even stronger than in Finland and Sweden. Even though sales of used EVs is increasing in Germany. It is still a very small part of our business. However, the number of cars sold in Germany grew. The average price of cars sold cars was lower than prior year as planned and thus, the revenue growth was at 15%. Adjusted EBIT decreased as a result of the low margin of diesel cars. As mentioned earlier, we closed 2 showrooms at the end of June, centralizing our Hamburg area operations in the Nedderfeld showroom. And now I hand over for Enel more details in figures. Here you are.

Thank you, Juha. And summarizing our financial performance in the quarter, you already referred to many of the numbers. So sold volumes and revenue grew and growth was generated in Sweden and Germany. Sudden shift in demand for different powertrains urge us to accelerate inventory turn. That was a choice we did. And that required us also to adjust pricing, especially for diesel passenger cars and also hurt our margins. It was a single biggest reason for decreased profitability breaking the trend of 4 consecutive quarters of improved margins in Sweden as well as gross margin improved. Our work on business fundamentals and daily operating practices started to show also in financials. In Germany, volumes grew, however, profitability continued to be at a low level. And we relentlessly continue working on with the solutions and with the improvements. Inventory management continues to be our profitability -- and throughout the year, inventory levels have solidly followed seasonal cycle. Inventory turnover in days show improvement. When we look at the operating cash flow, it reflects most part inventory cycle. Cash released from net working capital was EUR 12.3 million to comparable period. Our cash balance at the end of the quarter was EUR 8.8 million, and we have EUR 15 million available unused credit facilities. Net debt was very much lower compared to last year, and it is now EUR 49.5 million level. Equity ratio was close to 50% level. And here are our key numbers. Asset revenue grew, gross margin declined. All major categories of operating expenses declined compared to previous year. And return on equity and equity ratio improved slightly. Looking at the figures, we when we had a market of sudden shift in powertrains, we turned our focus into inventory turn. We ensured right size of inventory and solid financial position. We can see here trend in volumes. Volumes increased in the quarter driven by focus on inventory turn. As said, -- and you can see here the growth in Sweden and Germany were substantial. Finland was at the previous year level. However, we, of course, every day, remind ourselves that our volumes a few years back remind us of the capabilities we have and also the ambition to go back to growth continues to drive us. Our integrated services revenue declined slightly and the slight decline spread, it was spread across different services. Here, we can see revenue trends from quarters and recent years and drivers of the trends were underscored earlier and we, as said, firmly focused to regaining volumes and improving profitability. Cash flow, minus EUR 10 million in H1, and it was seasonal buildup of our inventory that was the key driver. And we can see also here the inventory increase about EUR 20 million, affecting the cash flows. We are satisfied that we both started and also closed the quarter with the size -- rightsize of inventory. Our outlook for 2026 remains unchanged. We expect adjusted operating profit for 2026 to increase from the previous year. And back to you, Juha.

Thank you, Enel. Our long-term targets are still the same. However, we have started working on updating our strategy. And as part of the work, we will also review our targets. We will be getting back towards at the end of the year. We continue to perform well in customer satisfaction and have achieved our target. For Q2, the group NPS was 66%, which is excellent. EPS is at 19% as it was also in Q1. Here is our current management team. Tuuli Kiiski joined us last week as Chief People Officer. Tuuli comes from the Suvia Group whereas he was working as an HR Director and a member of the management team. Tuuli has a strong track record in developing and leading HR functions in multisite organizations. Since he's also experienced in developing supervisory work and building and implementing consistent ways of working with employee well-being as a priority. So I believe that Tuuli is very good addition to our management team. Our ongoing focus areas remain the same, except with even more focus on inventory turn and health. There is still a lot to do, and we continue to work on these basics on daily basis. Our vision also remains unchanged to become the #1 used car retailer in Europe. And now it's time for questions.

Thank you, Juha. Thank you, Enel. So as said, we shall begin with the questions via the teleconference line.

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

Yes. This is Maria Wikstrom from SEB. I have 3 questions, and I'll take them 1 by one. I'd like to start with your guidance for this year. What makes you confident that you are going to reach an improving adjusted EBIT for the year when you are currently EUR 1.3 million behind last year.

Yes. So thank you for this first question, Maria. Our view is based on our current estimates obviously, Q3 has a very important part to play in being in the outlook and reaching our outlook but also very important to when we go to Q4 that we are -- we go with the right inventory with the right mix with the right capacities. So this is a very important. Also, when we look back last year, H2 was unfortunately, was also historically at the low level. So we keep our estimates and also when we look at certain trends here, we are keeping our guidance outlook unchanged. But we -- of course, a lot of work is to be done and the actions also.

Thank you. And my second question is a bit more on like the inventory positioning -- as to me, it shows a bit that every time when there is a shift in consumer preference in the market, Kamux's inventory ends up being on the wrong end of the -- or -- how would I describe it, the inventory is not optimal, I mean, for the current customer trends. And yet, you have very short inventory turnover cycle. So you would think that you could adjust your measures quicker than it actually shows in the profitability. So can you a little bit describe that what have you now done in your inventory management when you have seen that there is less demand for diesel cars with and with the lower pricing that do we expect to see improvements than already on the Q3 onward? .

Yes. If you look back many quarters, what we mentioned with Enel that we focused on profit level margin level per car. And when this Iran war started, and we saw how much the demand for the diesel cost decreased and inventories increased we made decisions. Now we changed our focus. It's more important to push the inventory out those is cars and take less margin compared -- the option that you are waiting and wishing at some point after some months, these care remains are and prices are going up and you get more margin. And this was the reason why we focused a lot of the turning resale cars down. Now and what happens, for example, in Finland. The level was 8,000 used passenger cars diesels available in the Finnish market, and it increased over 12,000 units. It means 50% and at the same time, happened this demand went down. But now we see that demand went up and also the diesel levels available cars are coming a little bit down.

Okay. And 1 follow-up on that answer that if you describe -- could you describe that how has your metal margin per car developed month-by-month over the Q2.

I think that we didn't open month by month. It's quarter based but especially may -- as I mentioned, that in Finland, it was minus 7.2% the total market in used cars, it was very, very challenging month. And compared to Germany, for example, it was April when the market was down over 10%. And those was the challenges what we had in market. And now when we look over the inventories and what happened, I would say that we -- I do the same decisions what we made in the spring.

And personnel count is -- in Finland is down to 5 employees. Do you think that there is a risk that it's difficult to get growth in the market when I would think that your sales force is declining at the same time.

Yes. Thank you for this question. So yes, we are down with our employee numbers. But I would like to say that it is when looking back comparable period, we had a number of changes and a number of initiatives to more towards stabilization of our employee number and also costs current -- what we see currently, it is -- we have very much look that it is a number of personnel and also cost that it supports our business. So I would say that we have became towards more stabilization in personal number, turnover as well and also costs. And also to say, of course, we also continue working with that. So personnel is something. But I would say that a number of personnel is not something that would, how to say, reject growing or would make growing more difficult. So Yes. .

And if I continue shortly that we focused on also a very lot on heavily to helping our employees as the sellers to sell more, how to sell more products per person. And also the demand in the company increased.

I have no further questions.

I believe we have some further questions from the teleconference line.

The next question comes from Joonas Häyhä from OP.