Then I wish you all welcome to this telephone call regarding the announcement that Bilia made during yesterday evening. My name is Kristina Franzén, and I'm the CFO of Bilia, and together with me, I have on the line.
Yeah, Per Avander, welcome, and hello, everybody, Managing Director for Bilia AB.
I would like to ask you all to put your phones on mute, for a while, and then myself and Per would give you sort of a brief of the situation, and then it will be possible for you to put questions. But, but please, if you put your phones on mute in the meanwhile, to have as clear and loud line available as possible. As a start then, yeah, just to brief you on what actually happened. Bilia did receive last week, Thursday, November 19, a notice of termination of the dealer agreement, from Volvo Cars. The dealer agreement, which was terminated, was for Sweden and Norway. It is for all our Volvo dealership, and it has a notice period of two years.
The termination as such, concerns both the car business and the service business, and the reason for that is that those, both businesses are both included in this same dealer agreement. During this notice period of two years, the business will be conducted as before, so it's business as usual during this two years notice period. So that's a little bit about what has happened, and before I let Per in, I would again ask everybody to mute their phones. So if everybody mute their phones. There is a lot of noise in the background. Thank you for muting your phones.
Yes, I'll take over from Kristina for a while. We are a little bit surprised, and we haven't had any dialogue with Volvo before we got the termination. We have today a fantastic customer satisfaction, and the customer, they love Bilia, both when we sell the car and when we repair the cars in our workshops. We achieve all targets we have got from Volvo as a dealer. We have got one reason why they terminate the contract. Volvo like to have in the future smaller dealers. I'll talk about the termination. We have one contract in Sweden and one contract in Norway, and in the contract it included the vehicle contract and the service contract.
For the service contract, we have a Block Exemption in Europe, so we will apply again immediately, as we meet all criteria for a new contract in the service business. Volvo can't block Bilia, so we see in the future we will have a new contract for the service business, the most important. If you look at 2019, 75% of the profitability is coming from the service business and 25% from the car business, including the used cars, and the used car is more profitable comparing to the new car business. The new car contract it's terminated, and the end of the contract will be in November 2022.
I see for the future, we will have a discussion and negotiation about the future, but what will happen, I can't see it today. If you look little bit what happened in the short and the long perspective, long term and short term, in two years, it will be business as usual, but we prepare if we don't get the new contract for the new car business. We have a lot of locals for the new car business. Maybe we can put in the brands we have in the Bilia Group. We can terminate some rental contracts we have for the real estate, or we can put more effort in the used car business. As we have communicated since one year ago, we have the Netbil.
It's a new effort of all the used cars, and we have in long term a target of 25,000 used cars in the Netbil business. If we don't sell new cars, in long term, we will have in the future a lower risk in stock of new cars in stock and demonstration cars, and we have a lower capital tied up, so it in the long term. It is a transformation in the car industry for the moment. It can be the direct sales from manufacturers, it can be internet sales or traditional sales, what we have today, advice from a salesman, test driving and everything, we get an offer.
What will happen in the future, I can't see, but maybe it will be 30%-40% of direct sales, maybe, 13% of net sales in the future, and the rest are traditional sales. But it's not easy today to speculate what will happen in the car industry in the future. But we can see it's a transformation. Yes, Kristina, back to you again.
Yeah, and I think you mentioned in the beginning there, Per, that we have also initiated discussions about future cooperation with Volvo. So that has not yet started. I mean, it's only two business days since we actually received the termination. So we have an agreement to start discussions, but they have not yet been started. That means also, of course, that-
Yeah.
There are some things that will develop over time in terms of how a future cooperation would be set up and outlined. So let's see, Per, should we then check if there are any questions?
Yep.
To those of you listeners listening in. So please feel free to put your questions.
Hi, this is Michael from Handelsbanken. Can you hear me?
Absolutely, can we hear you?
Mm-hmm. Do you expect that the sort of yo could be selling some new car dealer-related assets to Volvo in this process?
Oh, let's see if we heard your, your question. Was your question whether or not we will be able to sell some of our, asset-like equipment in our facilities to Volvo? Was that your question?
Yeah, yes, or new.
Okay.
Retail stores or something like that.
Yeah, I think when it comes to the service business, we are continuing that business, as Per pointed out. So it means from that perspective, we would, of course, keep that a nd that is sort of the majority of the fixed equipment. W hen it then comes to facilities, and what type of equipment that would be there, there has not been any discussions with Volvo around that. But I think, Per, do you want to add something?
Yeah, yeah. We see in the future, we will have a contract for the service. So we need all equipment we have, and tools and everything, and our mechanics in the future. If you talk about the rest of the business, the new car business, I see we will change the infrastructure in Bilia, put in the used cars, maybe to change, close down some of the smaller facilities and use the other brands we have in our portfolio. M aybe in the future, Volvo ask us to help them to deliver cars, and get the provision for that. A s I said, we have a lower risk in the future, if we do that in new cars in stock and demonstration cars.
So we are not there yet, and some of our real estates, we have short-term contracts for them, so we maybe can cancel the contracts as well.
We did get a question on the earlier conference in Swedish, if we were convinced that we would actually continue to be authorized on the service side. And we are convinced, and that we would continue to have that type of authorization going forward.
Do you think that the sort of Volvo is willing to build also their own service network, or are they just chasing the sort of the new car related retailing business? What's your feeling?
I couldn't hear you. Can you take it again, please? You say.
Do you think that the sort of Volvo is willing to build up their own new sort of service network? Or are they just looking for getting over the sort of taking over the dealers, the new car dealership operations?
So your question is, do they only want to have the new cars, or would they also set up their own Volvo workshops, right? That's your question, okay, right?
Yes, exactly. Yeah.
Yeah.
Yeah. It's not so easy because we have 600 mechanics and body and paint shops mechanics in Sweden, and then we have a couple of hundreds in Norway. It's not easy to do that in two years, to build up a network for workshops and to have the right knowledge and the technology of each new Volvo is really complicated. So to build up that in the whole Sweden is not easy for them. So we can compete because we were convinced that we will get the new contract, so we can compete with them. W e have a good relation with our customer today. The customer satisfaction is higher in the average in Sweden of Volvo dealers, is one example. So the customer like to go to Bilia today.
Start from zero and find new customer. It will cost a lot of money.
Mm. It's probably a question to put to Volvo for those that have the opportunity, right? To see what their strategy is.
Yeah, yeah.
We have not received any.
Yeah.
Information about the reason.
Mm-hmm.
And how they think going forward, and.
No.
Okay, then concerning the sort of used car business, of course, the sort of new car business has been an important part of sourcing operations for your used car business as well. So, how are you going to handle that going forward?
Yes, we, when I talk about Netbil, it's an auction, and it's an outlet for used cars. And we launched now Västerås, a new facility for Netbil used cars. So we are going forward with the concept we have. I n the other conference we had, we got the question about how can we find used cars when we don't sell new Volvo in the future? But today, 75%-80% of all new cars we sell from Volvo is fleet business. And often you have a finance company behind, and so you don't get the used car as traditional, say, as we had for 10 years-15 years ago.
So what we are doing today, we have a cooperation with Volvofinans Bank and buy some cars from them. F or the other finance companies, it's a sort of an auction, and we bid for the cars. So it's the same today, and it will be the same tomorrow. S ometimes, we have a purchase department, so we buy cars from private person as well. So the same in the future, if we sell the car, new Volvo or not, we will find the used cars.
Okay, good. That's all for me. Thank you very much.
Thank you.
Thank you, Michael. Are there any questions from anyone else on the line?
One question from Erik Öberg at the DNB.
Mm-hmm.
I'm a little bit confused regarding the gross profit stemming from the new car sales for Volvo. You mentioned SEK 80 million in the press release, but, but how, how do you define that?
Let's see, if you question what type of cost.
Mm-hmm
Is included there, or? Mm-hmm.
Yeah, I mean, gross profit in my, in my view.
Yeah.
Is the revenue..
Yes
Minus cost of goods sold. But have you included any other OpEx in this figure?
Yes, there is. So you have the rental cost in there, and you have the people cost. So, so what you don't have included there is actually a share of, let's say, the common overhead costs.
Okay, so this is more.
Yeah.
What to say?
It is.
Uh.
Yeah.
EBITDA excluding overhead, or?
You can say that.
EBIT is around SEK 65 million, you can say.
Yeah.
In 2019. So in EBIT, if you take the account, the word in English, [take this to dawn] .
Ah.
SEK 80 million is around SEK 65 million in EBIT, we can say.
Cool. So that is after cost for premises, personnel.
Yeah.
And directly.
Yeah.
Related to this?
Yeah.
Okay.
Yeah.
What is the gross figure then? I mean.
Mm.
Revenue minus cost of goods sold.
That will be more.
What is the reasonable margin there?
Mm-hmm. Mm.
I don't think.
Not the question.
We actually, n o, no, we actually thought this was more relevant because this is sort of what we will lose for as a coverage of our fixed costs. So, that's the reason why that is submitted and not the other one.
You mean the coverage for the overhead costs?
Yeah. So that is.
Okay.
The EBITDA.
Mm.
Yeah.
'Cause you have a lot of fixed costs already burdening this figure in terms of premises, personnel, et cetera, if I understand correct.
Yeah, I think some of the, or the majority actually, of the personnel cost is also a type of variable cost, right? As such, because you have a salary that is also not fixed in that sense. Then, of course, premises would be the largest item where, where you have a typical fixed cost. But as Per said before, we would of course look into that, and see how we can moderate with the facilities, also move around, and also then see short term if there is a need to, to actually, look at the termination for, for those as well in terms of closure of the, the leasing contracts.
Yeah. Mm, many thanks.
Mm. Any other questions?
Yeah, hi, Anton Wilén here from Bloomberg News. Can you hear me?
Hello. We hear you.
Mm-hmm. Good. Yeah, I just wondered about, you said in a statement that you expect to meet your financial goals, but it seems like, this is quite a substantial part of your revenue. So I just wonder how you can be so sure about that?
Mm-hmm. Yeah, I think we have different financial targets, and I think, when it comes to the margin and the financial ones, we see that those are clear for us. Then we have the growth target, and that is, of course, where we look specifically into that now, to see how we would make sure that we continue to also have a growth. And then let's see one time what that means with the loss of this specific sales, if that is what will come out, long term then after the discussion.
Mm-hmm. Yeah.
Sure.
So, yeah, for two years, it's a business as usual. So we have to speed up to acquire more and follow our strategy we have for growth, more of the same brands we have in the countries where we are today, is one example. Another is, if we can achieve the target of 25,000 more used cars, we communicated it one year ago, is another. So we have two years now to change a little bit.
Okay, so it's based on the assumption that you will kind of mitigate this conflict loss with other partnerships?
Or other.
Yeah.
Cycle businesses. We also say that that target is for a number of years, so it's not each individual year.
Mm.
So we have the ambition to continue to deliver on those targets. And then, I mean, we measure those over a number of years, so that's a long-term development.
Okay, thanks. Thanks.
Mm.
Are there any other questions?
Peter from Arval . I would like to ask a question if Bilia is still owner in Volvofinans, and if that is the case, what will happen with that ownership?
Yeah, we are still an owner, and it's too early to say what happened there, because we don't know what Volvo will do in the future, or if they will sell the cars for themselves in the future, or they will have other dealers in some of the cities where we are today, or they will have a discussion with Bilia for the future, with maybe a new setup. So it's too early to see what happened with the Volvofinans Bank.
Okay, thanks.
Mm. Thank you.
Mm. Anything else from anyone? No further questions? No, it doesn't sound like that. Per, then I would suggest.
Mm.
That we would end the call here now.
Mm.
Of course, myself and Per are available.
Mm.
If there are any question that comes up later, either via phone or, or via mail, but we will come back to you.
Mm.
If there is anything that you would like.
Mm.
To add to the question list.
Yeah.
Thank you for listening in.
Thank you very much. Thank you.
Thank you.
Bye-bye.
Have a nice day. Bye-bye.