Welcome to the Bilia Q4 report for 2023 for the first part of the conference call. The participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. Now, I will hand the conference over to IR, Carl Fredrik Ewetz. Please go ahead.
Thank you very much, and thank you for the introduction, and a warm welcome to Bilia's fourth quarter results presentation with the CEO, Per Avander, Kristina Franzén, and today we have our deputy, Deputy CEO, Stefan Nordström, with us as well. The agenda is pretty much the same as last quarter. We start with the current situation in the car industry. We go through the numbers, and we will finish off with an outlook, and this time, an outlook for the coming quarter, but also for the full year, 2024, this year. So let's start, and I'll leave the word to CEO, Per Avander.
Okay, thank you very much, Carl Fredrik. Yes, and as Carl Fredrik said, we start with the current situation in the car industry. There is a very good and strong demand in the service business, especially for body and paint shops, with quite long booking times. The fleet business has still a stable demand for new cars in Sweden. The private consumers in Sweden and Norway are more wait-and-see, and buy instead used cars today. The order intake of new cars is much better in Western Europe. For the moment, we have the important Brussels Motor Show and in Luxembourg, the Festival, and the order intake is at the same level as last year.
Normal year, 25% of the volume of new cars is selling in the beginning of a year, in January and February, in the Festival and the Brussels Motor Show in Western Europe. In Norway, the market situation is still tough, with a lot of challenges: high inflation with high interest rates, a lot of floating rate for the Norwegian household. The government ended some support on new fully electrical vehicles, and sales on new cars is, for the moment, half, compared with the record year, two years ago, 2021. The demand for used cars are on a good level in all our countries. I'm aware we will see a lack of used cars in stock in the end of quarter two because we delivered too few new cars in the car industry for the moment.
It's a lot of discussion on new business models, agency model, subscription, and car sharing. Two of our brands, MINI and Nissan, launched now in January, agency model in Sweden with a lot of complications. XPENG launched in Sweden and Norway an agency model in May, but now they will go back to wholesale model. It's more a traditional model we have had in the past in our countries and in the rest of Europe. When it comes to Volvo, they are now talking about a hybrid model instead of agency models. Net turnover decreased organically by 6%, explained by high deliveries on new cars in Q4 2022. Maybe remember that the governments in Sweden and Norway ended some climate bonus in the end of 2022.
We report a result of SEK 440 million, uh, Swedish crowns, with a margin of 4.1%. Still, we have had the stable earnings in Sweden and Western Europe, while Norway reported much lower results, and it's the same situation for all competitors in the car industry in Norway. Last year, quarter four was a record quarter in Norway. On this slide, you can see the quarter four profitability from 2019 to 2023 in each country, and in the middle, we have Norway and the challenging situation. We will come back to Norway in our outlook for 2024. We go over to the important service business. As I mentioned, there is a still good demand in the service business. We have an organic growth of 9%. It's a really strong figure.
We report a profitability of SEK 320 million compared to SEK 368 million, quarter four last year. There are a few reasons why we report a lower result. We have had less to do in our delivery workshops due to fewer new cars to deliver compared to the last year. It was one less working day. We have also implemented a new workshop concept in Sweden for Volvo. We started up a brand new dismantling business in Norway, so there is some reasons why we report little bit lower profitability in quarter four. We go over to the car business. Deliveries of new and used cars, adjusted for divested and acquired operations, were 19% lower and 3% higher. In the used car business, we report a result of SEK 71 million, compared to SEK 55 million last year.
Sweden and Norway reported a much better result, but Western Europe, a little bit weaker.
The order intake adjusted for acquired operations were down 27%. The order backlog on new cars are on a normal level, a little bit over 14,000 new cars. And then we go over to Kristina.
Yeah, thank you, Per. So moving into the financial position, we reported an improvement in the operating cash flow of around SEK 250 million quarter over quarter. For the full year, we created an almost double cash flow, going from SEK 345 million last year to SEK 627 million this year. Net debt/ EBITDA at the end of the quarter was 1.3 times. It's a little bit higher than we had in the last quarter, but it's still on a stable level versus our financial targets to not exceed 2 times. The board proposed a dividend of 6.60 kronor per share. The financial target stipulates that the dividend should be at least 50% of the profit per share.
The proposal from the board of the 6.60 SEK represents 65% of the profit per share, which is also in line with the historical average that's been distributed. In addition to the proposed dividend, it also equals the operational cash flow, as a little bit more than SEK 600 million will be distributed to our shareholders. Yeah. That's a little bit about the financial position, and where we are, today.
Thank you very much. Let's move over to the outlook and, starting with the service business, where we see good demand and a sound, solid outlook. We see good booking times ahead in the service business, especially in our body and paint shops. Our customers continue to service and repair their cars even in tougher economic times, and we see that to continue. In Q4, the service business represented 77% of our operating profit. Moving over to used cars, Per has touched upon it. We foresee good demand for used cars in the coming quarters. Like we saw in the last quarter, consumers choose to keep their old cars or buy a used car.
When it comes to prices for used cars, we see a rather stable situation during the coming quarters, but potentially a lack of used cars end of the second quarter. Moving over to new cars, private consumer focus, but starting saying that we see order intake from fleet customers continue at a stable level, while then private customers are still in, what Per mentioned earlier, a wait-and-see mood short term. This is also the explanation for main weakness in Norway, where fleet business is not as widespread as in Sweden. We believe private customers will remain somewhat restrained also in Q1, when it comes to new cars due to the current uncertainty. But given the signals of lower inflation and lower interest rates, we may be in for somewhat better times later in the year for new cars.
And also remember that Bilia's order intake for new cars has historically been negatively affected early in recessions, but also early positively affected when the economy turns. The pent-up demand among, especially private customers, will of course, also impact positively, when the conditions improve. In addition to this, the pickup we've seen in campaigns from different car manufacturers, will most likely continue, during the year and boost the sales for new cars. Moving swiftly to Norway, Per mentioned that, we have talked about Norway during a few quarters, and especially the tough business climate. It is still tough and will remain challenging, at least during the first quarter. But looking at the second half of 2024, we hope to see a brighter situation. Then finally, acquisitions.
There is high activity in the market, and we think that will continue. The market, as I think I said in the Q3, is characterized by higher financing costs, slightly longer lead times, and increased supply, and I would say actually stable prices. And we will, and we want to be part of the ongoing consolidation, but also realize it's a balancing act in a changing market. I think that finalizes our fourth quarter presentation, and we can open up for questions.
If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from Stefan Stjernholm from Nordea. Please go ahead.
Hi, this is Stefan at Nordea.
Hello, Stefan.
Hi, I have a question on the service business. The sales have been strong throughout 2023, and margins are high, but we can also see that margins are coming down, I think, every quarter compared to 2022. What's the reason behind them? What should we expect? Is it fair to assume a stabilization or even an improvement? And if so, why for 2024?
Yeah, you can say that if you go to the normal service business, like retail business and the service with Toyota and Volvo, so there we have the same.
... margin as we have had in the past, but we have had a lot of new efforts. We have had the tire business, we have had a dismantling business. As we mentioned, now we started up a brand new dismantling business in Norway and a brand new body and paint shop. So when you start from zero, you don't have the right margin from the beginning, it takes time. And then we have some, we acquire some companies with much lower margin in the service business. But as I have mentioned in the past, that we have a centralized business excellence team, help them to build up strong concept and processes, so we can increase the margin and the turnover in the business.
So it's good business still in the normal business, as I can say-
Yeah.
-but the new business is a little bit lower. Maybe you have something, Stefan?
Yeah, I mean-
Yeah
... also we can see the margin in Western Europe is higher compared to last year.
Yeah.
So that's one example, where we can see that the improvement is there.
Mm.
But it's still like, as I mentioned, the new companies, it takes a while to put the processes in line. So but it's-
Yeah
... as I say, work in progress.
Yeah. So it's fair to assume some continued margin pressure from this new business also going into 2024 before it's annualized? Is that a fair assumption?
Yeah, mm-hmm, I would say so.
Yeah.
Yeah. And then regarding the supply chain, and we are all talking about the Red Sea conflict, is that impacting you to some extent already now or not?
Not, not what we can see for the moment, but, so still the spare part is coming in a good way, so nothing,
No
... there. So not for the moment.
You had lack of components, if you go back one year ago when they sold the new cars with long delivery times, but today it in place again, so these are normal delivery times.
Yeah. So, nothing for the moment.
No. No.
Good. And, and if we take all the external factors, including cost inflation, wage inflation, FX, et cetera, is, are the cost pressure or the cost increase easing, or, or what's your view on, on general, cost inflation?
You know, cost.
Yeah. So, having in mind, if we expect that the cost pressure will sort of ease off a little bit and be a little bit lighter going forward than it's been in the past. I think when it comes to the rentals, I mean, we see that there would still be rental increases for our facilities going forward, but I think the other type of cost increases are more on a labor level and not actually increasing with the pace that they did during the high inflation times when it just started off.
Sounds good. Okay. Those were my questions. Thanks.
Thank you.
The next question comes from Mats Liss from Kepler Cheuvreux. Please go ahead.
Hi, thank you. Well, a couple of questions on service then again. You mentioned that you have a pretty good, well, demand increase in body repairs and so on.
Mm.
Could you say something there about how that will affect the margins normally? Is it sort of the same as the, well, usual repair and service maintenance down, or is there any difference?
I would say, to start by, the pressure is there when we can see that the damages is on the same level as before, despite all the safety features in the cars. And you can see when you talk about spare parts, the average damage cost is higher due to all the technology in the cars. But I would say the margin in the body activity, when you talk about workshop, is a little bit lower.
Yeah.
So-
Because we have the insurance company, they paid, and we have some frame agreement with the different insurance companies. So, so, yeah, so a little bit lower.
Yeah.
Okay. And then in Norway, I guess service is part of the business there as well, but what’s happening there? I mean, is it only new car sales that are slowing and/or is it... Could you give some more flavor there?
Yeah. When you don't deliver so much new cars, you hit our delivery workshops, and they are really profitable. So, so that we, we see. But, but, still, you can say we have a lot of new efforts in Norway as well. Yet your Land Rover, we have acquired the outlet in, in, in Bergen. So we have a lot of different, efforts, new efforts, and, and they hit us when we are talking profitability as well. But, but when we look at our competitors, as I mentioned here today, I think we do it better when we talk profitability, if you compare with the biggest, retail groups in, in Norway for the moment....
But in Norway, they see it will be a little bit better and better this year, because it was a lot of support from the government, electric vehicles. So, the market maybe was too high, over 170,000 new cars, couple of years. And after, when they put in VAT, over NOK 500,000, when you in price, everybody stopped to buy a new car. And then we had another phenomenon that in Norway, it's a law, if they change the price with 6%, when you have ordered a car, you can leave the car back, when you have the car in the backlog. So we had a lot of cancellation and huge problem with them.
1,300 cancellations we had last year. So it was many different reasons why we had a huge problem in Norway, and it was the same for all competitors.
Yeah, and the cancellation as well. So it was not the dealer phenomenon-
No, no, no.
in other countries.
Mm-hmm. Yeah, sure.
Yeah, just mean them.
So you guess you can say that after Q1 in Norway last year, sort of, which improved. Well, and then about the car sales, I guess it's pretty good order backlog still, and you mentioned that lead times are declining. Well, should we expect the main part of this backlog to be delivered during the first half of the year then, or?
Yes, you can say that, mainly we will, because the delivery times is more normalized for the moment now. So I guess these 14,000 cars, most of them we will deliver before the summer. Yep.
And finally, on car sales area, I mean, used cars are in good demand. It sounds like that anyway. And I guess, in the mix of inventory mix you have, I mean, diesel prices have come down a lot. Or could you say something about the demand for those kind of cars and how you are sort of?
Yeah, you can see that, with the change in taxes on diesel and petrol, you can see the demand for diesel car is increasing. And I would say also the pricing is a little bit going up for diesel cars. And I think also, what you have also in Sweden, you can say the low currencies, I think some companies export a lot of cars, so you still have a lack of cars. So I think, yeah, diesel cars is how to say, a little bit interesting again, can you say it like that?
But export cars slowed down in quarter four, you can say, because the currency. And we don't like it because we like to have the cars in our markets. We can repair and have service of them and purchase them again. So we don't like to export a lot of cars.
No, but in the total, it's possible-
Yeah, yeah
... for the price.
Yeah, yeah. Yeah.
Do you have sufficient amount of used cars to to sort of well meet the demand for for them?
Very much. Yeah, yeah, I would say the stock of used cars is in a good level.
Yeah, yeah.
And, uh-
Normal level
... and the mix is, fairly good as well.
Yeah.
Yeah.
But when they don't deliver so much cars in the—for all brands now, I guess and think it will be a lack of used car, and then the margin will go up again, a little bit higher than we have today. And what I have seen when we had a recession in the past, that when you have lack of used cars, the private consumers start to buy a new car, because when the margin go up, you are close to a new car in price, and then they jump over to a new car. So I guess we will see that in maybe quarter two, quarter three, quarter four this year.
Okay. Okay, very good. Thank you.
The next question comes from Andreas Lundberg, from SEB. Please go ahead.
Yeah, thank you. Good morning. Can you hear me?
Yes, we can.
Yes.
Yeah. So let's go back to used cars again, on a more big picture performance. If I go back to before 2019, you had pretty low earnings there, and it was a low share of the group. While something happened in 2019, and now you have basically running at about 20% of group earnings coming from used cars. In addition to, so say, positive external factors, what has happened? Or is it anything that we don't really understand? Or can you talk about your used car business today versus 5, 6 years ago? Thank you.
Yeah, I think we do it better because we work hard with the turnover rate of the used car stock 10 times today. If I go back 10 years, it was not so important at that time to follow up the turnover rate because you can say a used car is the same like fruits. You have to sell them early. Today, we have much more concept for used cars, and I would like to say, more focus on used cars. We have take care of the older used cars we purchase. In the past, we sold them to gray dealers, used car dealers. Today, we putting them in Bilia Outlet.
And then we sell them from our Bilia Outlet instead to gray dealers in the past. So I would like to say more focus. Maybe Stefan, you have something more-
No, but if you need to focus on, you focus on the turnover rate, you also need to be faster with the pricing, and adapt to changes, positively or, how we say, or if the pricing is declining. So I would say we are much faster with the pricing changes in the market now when we have the turnover rate in focus.
Mm-hmm.
So you can say that some of these improvements are more structural?
Yeah.
Yeah.
Okay, got you. And then, I mean, the implications of EVs, basically, when it comes to the used car market, and, I mean, the hesitation you now see among consumers to buy a used electric vehicle, and also perhaps the limited production plans for the traditional cars or engines. What do you think this will mean for the dynamics of the used car market? Thank you.
One example, we could see earlier that we had problem to sell used car, Porsche Taycan. We are really fast, as Stefan mentioned here now. So we reduced the price, and we were first in the market. We sold out our cars directly. It's one example how we are working today, but you can see that the pricing is declining for EV cars today. Because when we have electrical components, our manufacturers, they could increase the price. Some of the brands we have 10% for one year. Now they have to reduce the price because now you don't have incentives in Sweden and Norway, for example, from the government. So it's not so much interest from our customer to buy EV today.
So, you can see the pricing on new is declining, and it will be the same for the used.
Lastly, a different topic. You signed an agreement with JLR here before year-end, I think, to become an importer of those brands in Sweden and Norway. First of all, why are you doing this? And can you also, secondly, explain the economic model for this import setup? Thank you.
It's a long-term initiative, we can say, to be importer. Maybe it can open up for other brands. So you can, you can have profitability from both as a retailer, but you can be profitable in a second way with as an importer. So if you talk about spare parts, you can have a really good margin as an importer, and then you have a margin as a dealer. So and we have seen, we have seen a trend in Europe that some brands, they, they like to sell them to private. If you look at the biggest dealer group in Europe, Emil Frey, they are an importer in many countries. One example, they have JLR in Switzerland.
Another Inchcape, they are importer of JLR in Poland and in the Baltics. And maybe you have seen Hedin, he took over for Ford and some other brands. So it's a trend in the market, and you can be profitable in what you say? Two ways.
Two steps.
Two steps is right, yeah.
Because you probably know as well, Andreas, of course, that we also had a retailer in Stockholm, so we also-
Norway also.
And Norway with Insignia. So we're also on the retailer side on the JLR, in both Sweden and Norway nowadays.
Mm. Correct. And what's the trend for the, the larger, import, so say, companies in, in the Nordics? I guess, do-
Um-
More are doing it themselves today.
Yeah.
Is that a large change, do you think, or?
One example is Mercedes Trucks. They are not so big when we are talking market share in Sweden, 8%, but they sold their business to Veho Group, a Finnish company. So they are importer for Mercedes Trucks, but we don't see it, Mercedes, BMW, passenger cars, Volvo, but smaller brands, you can see it sometimes.
Okay. Thank you so much.
Mm, thank you.
The next question comes from Simen Aas from DNB Markets. Please go ahead.
Hey, good morning, guys. So I have a few questions. So my first question is on the campaign activity that you mentioned in the market. Could you just give us some flavor on how this accelerated now in Q1, or is it the same as in Q4? And just to highlight, this is also covering your brands as well, right? So they also have campaigns.
Yeah. If you go back one year ago, when you had a high demand in the market, a little bit over one year ago, and the production was really low because it was lack of components, especially semiconductors. Our manufacturer, they increased the price. No campaigns in the market. Nobody talk about pushing the market. It was a pull market, and it's not so good for a company like Bilia. But now we see the production is higher if you compare to the demand, and now they start a lot of- I can say it started in quarter four with a lot of campaigns. You can read it in the biggest newspapers in Sweden. Volkswagen, they have reduced the private leasing cost for the customer a lot for fully electrical Volkswagen.
Mercedes, they reduced the price with maybe SEK 100,000 for some of their fully electrical cars. So you see a lot of campaigns, and it's really good for us. It start to be a push market, and then we can see, as Carl Fredrik said, that then we can see the private consumers can come back into the market again.
Okay. Yeah, yeah, that makes sense. Then, just on that topic, you know, your underlying order intake has now been negative for some 7 quarters in a row, and I know that you have said that you expect the market to be soft in the first half of 2024, but should we expect this figure to turn positive during the spring, summer, just because it's from a very low base, obviously, but is there a turning point in this figure, do you think, or is it too early?
I would like to see quarter one now. We don't see directly where we have a really high demand for new cars from private consumers, not yet. I think still it's a wait-and-see market, but when you can watch that some good news, then we can see the private consumers, their self-confidence will come back, and then they start to buy new cars. Now we have had a low activity from the private consumers, maybe one year now, and then I know they must start to buy new cars again. If you go back a couple of years, you could buy a private leasing car for private consumers, SEK 2,000, SEK 3,000.
And then when they come back after three years and we talk about 5,000, 7,000, 8,000 cars because they have the interest rate and the manufacturer had increased the price. But now we can see the pricing for private leasing is declining again, and then we can see the private consumer come back. But I think we will see better demand in quarter two and in quarter one.
Yeah. Okay. So maybe a sequential improvement throughout the year is fair to assume, just to get a feel for how that number will go. But okay. So and then one last one here on, you know, there's been very bad weather and icy roads in the Nordics towards the end of last year and into 2024. Have you seen any positive impact on this in your service business, any more cars that are, you know, crashing or stuff like that?
Yeah, yeah. But you can say it's... How do you say, if you talk about a body shop, of course, when it's like that, it's increasing the booking times in our workshop, when you have bad, bad, cold weather. So I would say the main thing is perhaps then the body shop activity.
Yeah, okay. Just to give a feel, how much is that roughly of the service business?
How much? We don't have a figure for that, but as Stefan said, now it's a lot of accidents, but our customer invest more in winter tires when you have winter and you have slippery roads, so it's good for us. The best weather in our industry is cold weather, warm weather, cold again, because when you have a really winter with snow for a long time, it's not the best weather if you're talking body and paint shops.
Okay. Just to remind me, I can't really remember on top of my head, but last year it wasn't that icy, right? So should be a year-on-year positive there, or is that correct?
This year, this year is probably worse than last year.
Yeah. Yeah, it was a green winter a lot.
Mm-hmm.
Yeah. Okay, that was my questions, guys. So thank you for that.
Thanks, Stefan. Thank you.
Thank you. Thank you.
The next question comes from Mats Liss from Kepler Cheuvreux. Please go ahead.
Yeah, hi, I just behind the one here. Looking at the order intake, I mean, you're right that it's down 27%, overall, I guess, but in the car, new car business. But if we just for the sort of temp up on the very strong demand in Q4 in Sweden, often due to the EV, well-
Yeah
-thing.
Time is good.
Could you make a rough estimate how much is that affected that figure? I mean, is it down 10, 15% or whatever?
Yeah. But if I remember right, Kristina, that-
Mm-hmm.
We had a huge backlog.
Yeah.
The problem, it was to deliver the cars in the end of December-
Yeah
... 2022, 2023. Yeah. So, it was not so much order intake because it was long delivery time, if you go back a little bit to one year ago.... So you can't see in the figures, when we say 27% less order intake in the quarter, I think it's the same, same. It's not the effect of the climate bonus.
No.
Deliveries is that.
Yeah, deliveries we had a huge effect on, and especially in Norway, most of that actually came from the order book. In Sweden, I don't think we dare to estimate that. If it would have been a little bit of an upturn, perhaps in the fourth quarter. But I do agree with you, Per, the most would come from Norway.
Mm.
So, perhaps-
Okay, so because, I mean, the EV contribution was sort of canceled November first, if I remember right, or eighth, or something like that. So I mean, I guess it was mid-quarter there, and maybe some people tried to put an EV order just before that date.
Yeah. And we had that peak, that's right, but I don't dare to say which effect it would have. I mean, it was one day because it came so rapidly.
Yeah.
Um-
That's right.
We can look into that.
No, no, that's... Yeah, just to get a feel of it. So no, thank you. That, that's good. Yeah, come back if you have any, anything else.
We did not have the same effect in Norway then, but that was the sweet effect.
No, no, that's true. Okay, that's-
As a reminder, if you wish to ask a question, please dial pound key five on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Again, thank you very much for listening, and please come back to us. You can email me if you have further questions, and have a good day. Thank you very much.
Thank you.
Thank you.