Auto1 Group Se

Hello, I'm Philip Reikersdorfer, Director Corporate Finance at OtterOne and looking after investor relations. Welcome today to our presentations for the results for the first quarter of 2021. We are joined today by Christian Bertermann, our CEO and co-founder, as well as Markus Boser, our CFO. Before we start, may I remind you of the disclaimer at the front of the presentation today regarding forward-looking statements. Also, as you know, we will take questions after the presentation. To ask a presentation, please use the chat function in the webcast, the button with the question mark on the left of the screen, and then once you have your questions in, we will sort them at the end of the presentation and go through the questions. And with that, over to Christian.

Hi, everyone, and welcome to this earnings call. I wanted to start by giving you a strategic update on all of our business units and then hand over to Marcus for detailed financials. So as you know, at Auto One, we're building the best way to buy and sell cars online. Let me quickly remind you why Auto One is such a unique opportunity to invest. So we're operating in this incredibly large market. 700 billion euro of volume that market is moving online faster triggering that moving online of the european customer base with our advertising we're the number one company in this market already by total units sold and we have built a unique sourcing and technology platform that enables our future hyper growth and we're very well on our way to build the leading online car retailer with auto hero We have made huge progress with our mission in the first quarter of this year. We've worked incredibly hard in Q1 and delivered on all of our key objectives. So in Q1, we scaled our AutoHero deliveries much further. We've taken our brand building to the next level. And we did this while maintaining the AutoHero gross profit per unit in line with our guidance. And also in the merchant business unit, we grew C2B and remarketing units despite ongoing challenges by the COVID environment across Europe. And also in Merchant, we scaled further while maintaining gross profit per unit within diamonds. So you can see on the next slide that we are realizing our Autohero growth plans at high speed. We've delivered an impressive 87% Q1 over Q4 growth in Autohero units. Our Q1 this year is more than three times larger than our Q1 last year. Those numbers show you how well our Auto Hero value proposition is received by our customers. European customers are starting to appreciate the benefits of ordering their car completely online. And at the same time, you can see in those numbers how capable the team is in scaling the Auto Hero business across nine markets at the same time. So on the next slide, you can see that in Q1, we have sourced nearly all of our delivered units from private customers with a 99% share. This puts us in a top position long-term when it comes to realizing our full GPU potential. And we wanted to remind you of that unique sourcing channel that AutoOne owns. So both CarMax and Kavana see units sourced from private customers being the more profitable units. We think that long term, our share of privately sourced units will be around 60% to 70%. Now let's talk about brand building. So we have intensified, on the next slide please, our Autohero brand build up. You can see on the left that we have increased web sessions on the Autohero platform by more than 2.4 times in just one quarter, with the traffic and marketing ramp We really are becoming the go-to online destination for ordering your next car. And the customers on the platform, they're showing massive interest and curiosity towards the Autohero product across all our markets. We're driving brand awareness and demand per car upwards in all of our nine markets in parallel. And we want to show you on the next slide a little bit of showcase for Germany. So Germany really demonstrates the power of our marketing machine nicely. We spent 4 million euros in Q1 in Germany to drive up awareness in our target group, which is 18 to 44 years and male. With our first wave of branding campaigns, we nearly doubled the awareness in that group and brought it to a total of 17%. So that is already 70% higher than in the general population. And in this broader audience, adults 18 plus, Auto Hero now has a brand awareness of 10%, which was coming from 6%. So you can see that we've really built up top awareness levels with the group that is most affine to buy their next car online. And we're only at the beginning here. You can see on the right that we're smartly connecting the different advertising channels like YouTube or TV with sponsorships to create the maximum output of our brand budget. In May, for instance, we announced that we're becoming the main sponsor of the DTM, the most important German racing series. This recognition of the Auto Hero brand, you can see a picture on the next slide in large scale. It looks actually pretty cool. So our truck, I'm pretty sure, won't win the race, but Auto Hero will win the race. So this recognition of the Auto Hero brand and not advertising channels we further speed up our brand building efforts. And going forward, we expand that brand building in Germany to all relevant demographics because we see early data, web traffic, and also demand per car being so positive in development. We aim to establish Autohero as a majority known brand in Germany. And we're very well on our way when it comes to realizing that goal. So let's talk a little bit about AutoHero product development. On the AutoHero product development side, we have released our trading functionality for Germany. This is pushing our customer experience further ahead. So we've taken our sell from home funnel from the merchant business and we adapted it to best fit the AutoHero platform experience. So this means you just enter your car details and you will quickly receive your trade and offer which you can then apply against the price of your new car. And when we are delivering your car with our AutoHeal truck, we're able to pick up your trade-in directly after we handed you over your new car. And that is just the best customer experience possible in our eyes. We will roll out our trade-in module across Europe step by step. And yeah, we have a little video that is coming up here now, which is the new ad spot for trade-in, which has been launched in Germany, I think two weeks ago.

Okay, I hope it's finished now.

On the next slide, we are incredibly focused on our net promoter score. So as you can see in the chart on the left, we're constantly seeing happier customers across Europe with a current NPS of 65 for May. Our customers love the auto euro value proposition and are even 41% happier if we are delivering with our own glass truck. You can also see that our longer term target of 80 is not the ceiling when it comes to NPS. So Swedish customers, for instance, rated us 94 in May so far when delivering directly to their home. On another note, on the next slide, we wanted to update you again about the number of trucks that we have on the road. So as you know, one key element of our brand experience is the home delivery in our unique glass truck. And when we deliver with a truck, it's the best possible customer experience. That is why we're rapidly, rapidly expanding our truck delivery fleet. So we have 35 trucks on the road today, and we will have more than 100 trucks until the end of the year. And we also increase our total order of trucks to 214, which are expected to be on the road delivering next year. So we have a little bit of chip problems as everybody with a new car delivery here, but that is the numbers that we are seeing. All right. So on the next slide, that's also like an important aspect here, refurbishment. Our message here, we're fast tracking our plans to take over refurbishment. So our feedback from early pilots on doing refurbishment on our own is very encouraging. So we think that we will be able to produce a higher output of refurbished cars with lower costs and better quality if we take over refurbishment step by step. So we're scouting sites for our own refurbishment centers at the moment in Germany and Poland. And these will be sites with a midterm capacity of up to 100,000 units per annum. On the right hand side, you see our total capacity of refurbishment per annum. So the current capacity fits our business plan nicely with 65,000 units this year and already committed 150,000 units next year. And we think that by the end of the year, we will have 15 to 20% of the year-end deliveries in in-house refurbishment capacity. So as mentioned, we want to take over a growing share of refurbishment ourselves going forward. So that's it on AutoHero. In the merchant segment, we continue to see strong performance despite lockdowns continued throughout Europe in Q1. So in C2B, we were able to grow our units sold by 10% to more than 106,000 units over Q4. And our revenue grew 8% quarter on quarter at the same time. We had on and off lockdowns with different severity and different colors across all major markets throughout Q1. What can we say? We can say that we saw immediate positive effects when there was a shorter period of more relaxed COVID measures in March. And we saw a similar strong performance for remarketing. So remarketing in the same COVID impact at Q1 environment grew 12% On the next slide, please, grew 12% in units quarter on quarter and the same 12% in revenue. So this adds to the overall strong and solid performance of our merchant business in Q1. And we're looking forward to the hopefully non-lockdown environment in the second half of the year. And we remain positive on catch-up effects. And with that, I would like to hand over to Marcus for financials.

Thank you, Christian. Financially, we had a strong Q1, reflecting achievement of our strategic priorities that we set out at the IPO. Overall, we sold 131,000 cars in the quarter, with Autohero jumping to over 6% of the total car volume and 10% of revenues. Our revenues were at their highest level since Q4 2019, pre-COVID, despite the impact of the COVID lockdowns in Q1 across Europe, mainly as a result of our sell-from-home solution and the continued growth of our auto hero business. We achieved the gross profit of $86 million, $3 million higher than Q4, and broadly flat year-on-year, with a slightly lower margin of circa 9.6%, mainly reflecting the dilutive impact of the growing auto hero business as both the merchant margin and the retail margins were flat year-on-year. OpEx increased slightly year on year, mainly due to their increase in auto hero marketing and to a slightly lesser extent, purchasing OpEx leading to an adjusted EBITDA of minus 14 million. As we turn the page and look at our key GPU metrics, We saw that in the merchant business, GPU was up 600 to 688 euros per car relative to the full year 2020 as a result of our improved sales speeds and better discipline on pricing. Relative to Q3 and Q4, it was slightly down due to lower demand as a result of COVID and slightly lower sales speeds in C2B. In our view, COVID has led to fewer changes of registrations or new cars or trades in our core markets. So we believe that we've been gaining market share in the merchant business over the past quarter. On the retail side, GPU stayed within our guidance of 250 to 300 euros per car. On the one hand, we're seeing some very promising developments in sales speeds, particularly in Germany, where we first initiated our marketing investment and have the highest brand recognition. But this, on the other hand, was moderated through somewhat higher refurbishment costs. We turn the page. In terms of inventory, We've been building up inventory over the quarter really to invest in Autohero growth and built that up to 251 million euros on a gross basis. We also take a look at this on a net basis as we have a drawn around 20 million euros on our ABS, which by way of reminder is our working capital facility against our inventory. In terms of days of sales, our inventory turns increased slightly from 23 days to 26 days, really a reflection of the increase of the auto hero inventory, which turned slightly slower relative to our merchant business, but nonetheless still reflects our best in class inventory turns. We turn the page. We end the quarter with a extremely strong position with around 850Million euros of cash and liquid assets with almost with all of our corporate debt paid down. So we started the quarter or ended the year at 157Million euros of cash. uh and as you can see here uh around 14 million negative uh adjusted ebitda another 22 million of net change in inventory other cash flow changes and for the first time some some real capex as we begin to invest in refurbishment facilities um at the same time we received almost a billion euros of from our ipo proceeds of which we use 232 to repay the convertible leaving us with 850 million euros of cash and liquid investments, which does not include the 435 million of undrawn ABS facility. We turn the page, please, and look towards our guidance. I stated we confirm our 2021 outlook, So, in terms of units for the group, we are looking to trade 592 to 638,000 units with 560 to 600,000 units in merchant. At Autohero, we maintain our guidance, but have stated that we see the units in Autohero being at the top end of that guidance. Revenue-wise for the entire group at 3.8 to 4.2 billion euros, gross profit 360 to 410, and an adjusted EBITDA margin between minus two to minus two and a half percent, but at the moment see ourselves towards the lower end of that adjusted EBITDA margin guidance. With that, I'd like to thank you all for your time and turn it over to questions.

Okay, thank you, Marcus. Thank you, Christian. And we start with questions from Will Packer from BNP Paribas.

Okay, so now your line is open.

Hi there. Will Packer here. Can you hear me?

Finally.

Sorry about that. I don't think it was my fault, but nonetheless, thank you for being so patient. So I've got three questions, if that's okay. Firstly, could you update us on the latest developments in your competitive set? There's lots of noise from Kazoo, Aramis, CarNext, etc. Are you seeing increased competition in your efforts to source inventory and attract customers at AutoHero? Second question, you kind of gave us some numbers around reconditioning, but could you provide a bit more detail on your progress there? What percentage of your cars sold are internally reconditioned today, and what are you aiming for by the end of the year? And then finally, could you update us on the progress at Auto Hero in the first few weeks of the quarter? Are you growing sequentially? Any issues you'd highlight there? Thank you, and again, thank you for your patience.

Yeah. Um, so on the competitive, uh, question or competitive landscape, um, I think what we're seeing is, I mean, we're not, we're not seeing Kazoo, like, uh, we're not like, I think then didn't change anything with RMS, Carnex was there before. Uh, and, and BCA, I think is, is active with their, um, uh, unit or online, uh, retail business in the UK and not in continental Europe. Um, so we're not seeing, um, any more competition from these players, but what we're seeing is that there's, um, a larger set of, you know, smaller players, be it car dealers, be it small, uh, startups with smaller platforms that, uh, uh, let's say, um, on honoring our successful IPO. So I think, um, we. Yeah, we are seeing some more competition there when it comes to the direct sourcing of inventory, but we don't think that this is a major effect. So I think the major effect in Q1 that we saw were the lockdowns and COVID measures. And we think that without lockdowns, we could have been like 10 to 15% better. Does this answer your first question?

Yeah, that's helpful, Carla, thank you.

Second was on reconditioning. Yes, yes, I have it, I have it, I have it. So on the reconditioning, yeah, I mentioned it in the presentation. So what we're aiming for is like 15 to 20% of our delivered units in December as in-house capacity. So at the moment, that amount of units that are reconditioned in-house are quite small. Um, so we have been doing multiple pilots, but, um, we are now pulling this forward, uh, and we are. I have set a realistic target there, I think, and we're absolutely looking forward to see those cars to be refurbished in-house because we think we will be faster once at scale. We think that we can do better quality and I think we can interface it better with the other one value chain on call. And on the third question, I think this was progress. I mean, I hope the second one is clear now. Yeah. And on the third question with the auto hero progress in the first weeks of the quarter, I could absolutely tell you, but I don't think that I should, Marcus, right?

Yeah, I mean, I think what we can say on that is that we are, you know, well on track for the guidance that we've given and see, you know, the business is running well in Q2. And yeah, I think that's kind of... all we can say right now.

Many thanks for the call.

Welcome.

And with that operator, if you could go to Nisla from Deutsche Bank. And Nisla, maybe if you keep yourself to three or four of your questions.

For sure. Can you hear me okay, Philip?

Yes.

Great. Hi, Christian. Hi, Marcus.

I have two questions on my end. Could you give us an update since volumes have picked up for Autohero on what the return rates have been like this year and how that compares to what was mentioned at the time of the IPO historically? Secondly, on the sourcing of stock, we've seen in the U.S. that there's been some concern around the lack of inventory because there aren't enough used cars being circulated. Is that different in Europe? And how has, like, have you been able to source stock, you know, as planned and without any issues? Some color there would be great. And, uh, my last question is on the merchant business, um, looking at sort of current trading and as certain markets ease their lockdown measures, um, do you feel that we could be trending also towards the upper end of the merchant volume guidance? Um, some color there would be great. Thank you.

Yeah. Um, so return rates haven't changed or they are below, um, 4%. Um, so three to 4%, um, depending on the market overall. Um, and, uh, I also don't think that they will, uh, change material, um, in the future, um, on the, on the sourcing point. So, yeah, I think it's a double effect. So you have, uh, less new cars, um, at the moment because, uh, of deliveries being reduced, uh, as everybody struggles with the chip crisis. And at the same time, uh, we estimate that there's like 10 to 15% less customers active in the market. And that I think leads to a shortage in that sense, or higher prices on the other hand, off used cars in the market. And yeah, what can we say? I think in Autohero, we're covering our sourcing needs easily. In the merchant business, we showed strong performance, but as indicated, I think there could have been an uptake of 10% to 15% if there were no lockdowns or the new car market would also be a little bit less restrictive. And then the ease of the lockdown measures, if we are on the upper end of the guidance, I think, Markus, what we said is if there is nice catch-up effects, I think then we could be there. but we need to see if they happen or not.

Yeah, I think from our side, I think it's too early. I mean, you know, a lot of lockdown, you know, lifting has been announced, but it's still to actually happen. And so I think we will know more, you know, frankly, by when the quarter is over. But I think it's now a little bit too early to say.

Great. Thank you very much.

Thanks. And a couple of questions, a question from Sherry Malek at RBC, and maybe starting with marketing and whether you could provide an indication of how much was spent on marketing for auto here in Q1. And then also, if you look at marketing and per unit, would be interested to know more about the dynamics there and how we should assume that evolves for the rest of the year.

So maybe just on the marketing, I'll take that question. So we don't break out between the Autohero and the C2B marketing. Um, having said that, uh, I think the, the, the growth, most of the growth in marketing quarter on quarter, uh, or actually all the growth of marketing quarter on quarter has, um, has come from, from auto hero. And, and indeed to some degree, uh, in our C2B business, you know, that, that marketing is, is, is a generally flat, um, has some seasonal impact. So Q4 tends to be a bit higher just because you've got. they impact at the end of Q4. So that increase is almost all from Autohero. I think in terms of on a per-car basis, at the moment, as we had talked about at the IPO, and I think it's still our strategy now, We are not looking at it so much from a per car basis, but really from a brand recognition. And if you want sort of brand recognition per market basis. So right now we are still in the process of building up that brand. We kind of did the focus on Germany. So you can really see if you want kind of the effectiveness of the marketing in getting to that brand with our stated intent that we get to a 50% brand recognition among people who are looking to purchase a car. Um, and so kind of, that's really the, the, the KPI that we're looking at as opposed to a per car basis, because it would obviously be very high right now as we, as we build that, build that up. Is there a third question? I think hopefully that's answered the questions.

I mean, maybe before we go to the final question from Sherry Andrew at HSBC related question on the auto hero side, are you pleased with the 10% brand awareness? Where do you think this can get to? And do you need to accelerate marketing spend to achieve this? And I think there's also a couple of questions just around the 200 million number, how that is spread and whether that is sufficient.

What's the question? If we're happy with 10% brand awareness.

Yep.

No, we're not happy with 10% brand awareness. No, we want to bring it in the direction of our C2B brands, right? So there's like 50, 60, 70%. And yes, we will continue to build up our brand with advertising budget and marketing and Yeah, we will even in Germany intensify our brand building efforts going forward and take an even larger target group. And yeah, Markus.

I think in terms of the 200 million euros that we stated the IPO, I think it's a little bit too early to kind of provide or to change that guidance. I would say that we're seeing a strong return on the investment, both in terms of brand building, but also in terms of sales speeds and what we call our CTM margin, which is really our metal on metal margin before any refurbishment. Um, you know, in, in Germany where, where we first started with our brand investment and where we have the highest brand recognition. And so, um, more focused on that and, and, and that, you know, could lead us to increase that over time, um, over the next few years. Um, but, uh, at the moment, not kind of changing that, uh, for now.

And so, final question from Sherry at RBCS. Has the growth in AutoHero normalized in April and May as NPS has increased? What have been the challenges to NPS through Q1?

I think it's not so much like challenges. It's like there's improvements everywhere, right? Like, for instance, make sure that the car is clean one hour before the customer picks it up in nine markets across all delivery methods. That has one NPS driver, for instance. And we are working on all those small little things to bring customer experience forward. And no, growth is not, what was the word? No. I think the answer was no.

Fine. And then briefly from Catherine O'Neill at Citi. What is the timing of the potential owned refurbishment centre? Will this entail additional capex beyond the guidance? And what impact will accelerating the move to in-housing have on the auto hero margin?

So, in terms of CapEx, you know, we had talked about CapEx spend of 80Million euros over the next over the next 3 years. Um, and we are sticking to that, um, in terms of, uh, I think it's simply, it's almost a timing question. I think the slide hopefully, um, provided, you know, some, some color around that, which is, um, you know, we're, we're looking to, to, to build. and Christian's commentary as well, that we're looking to build really over the course of this year on the three or four facilities that we are looking at at the moment. I think by the time they are fully finished, and filled uh with all the equipment in it as well as having all the people in it and and and really working at full levels of two shifts that's more of a midterm um activity but in terms of capex spend um at least some of that will happen already um this year uh but but aren't giving kind of sort of specifically you know you really got right now on that but stick to the 80 million um that we uh that we had talked about over the next couple of years

I think related question from George at Numis is just around whether the 30 million that we guided for trucks is still kind of like in line with the delivery schedule, which we showed in the presentation. Yeah, yes, it is. And then the other question from Catherine at Citi, if marketing is ramping up as we progress through 2021, why are you not more upbeat on auto units for this year?

Christian, do you want to talk about that on the auto-hear units for this year?

So, why it, like, can you remind, can you repeat, Philipp?

Sure. As marketing is ramping up, as we progress through 2021, why are you not more upbeat on auto-hear units for 2021?

I think there is a potential. I think there is a good potential. But We want to see it realized first.

Okay. Great. And with that, maybe briefly to I think we are done with HSBC as well. I think we talked about inventory challenges. From those questions, maybe a slightly simpler question from Luke. What do we consider our top three KPIs?

Units, cross-profit, and markets.

I mean, I think, I think it, I think that would really be, I think it's in sense for units and auto hero GP and auto hero units, um, on the merchant side, GP on merchant, and then ultimately adjusted EBDA.

Um, so I would say, I would say. Cross profit per unit and NPS.

I think kind of coming back to the question on auto hero units in 2021, which is clearly an important one. Can you discuss things that could limit your volume growth this year? Do you have the capacity to extend beyond auto hero volume guidance?

Yes, I think we have the capacity, but what we want to do is like, I mean, what we want to do is really build a platform, right? that can scale over time to 2 million units. And we want to do it right. And we want to do it right in the beginning. So this means there's a lot of work in the background on all of the processes, on all of the hiring, on onboarding of people, showing them, teaching them the right processes fast enough. All of this together, we want to make sure that this is a platform for growth that we're building. So I think we could go further. We have the capacity, but we want to make sure that we are adhering to the high standard that we set ourselves. I think this summarizes it, I think, quite well.

Okay. I think that takes us through the main question complexes that we had. So with that, I think Mark has questions. Everybody who has dialed in, thank you very much. And we shall talk to you all hopefully later or next quarter. Thank you.

Yeah, thank you, everyone. So trouble, like, sorry again for the trouble of the technicalities here or like technical equipment. So I'm not happy about this. And maybe we can follow up with one or the other of you directly. Thank you.