Garo Aktiebolag (publ)

Welcome everyone to the presentation of Goro's Q1 2024. My name is Patrik Andersson and I'm the CEO of Goro. With me today I have Helena Claesson, our CFO, to present our financial performance. Next slide, please. Let's start with an introduction. Garo is a company founded in 1939 that develops, manufactures and sells innovative products and systems for electrical installation and their own brand in the European market. Developing products that are at the forefront has always been a significant aspect of our success. Our focus is developing user-friendly and safe products with a modern design and a long service life. There is market demand for products and solutions to assist in establishing a fossil-free society in which a growing number of players are becoming cautious of their sustainable impact. This makes the sustainable aspect a crucial factor in the choice of product and service. Next slide, please. We have two business areas, Garo Immobility, which consists of the Garo Immobility product area, and Garo Electrification, which includes the electrical distribution products, project business, and temporary power. We have operations in Sweden, Norway, Ireland, Finland, Poland, UK, Germany, and we also know establish a company in Spain which I will come back to later in the presentation. And we also sell in other European countries where we don't have own subsidies. We have production facilities in Gnosjö and Hillestorp in Sweden and in Szczecin in Poland, where we moved into new production and logistics facilities summer 2023 to meet the European demand for e-mobility products for the coming years. and we are approximately 440 employees in the group. Next slide, please. In the immobility product area, we develop and market all types of charges for rechargeable vehicles. We have a product and turnkey solutions for destination charging for various locations, including at home, in public, at workplace, and along the highway. To make the mobility business even more complete, we're also offering service agreements to assist our customers with the annual service and updates. We believe it's important to make it easy for the user and to make it possible to charge in locations where people live and work. This area accounted for 29% of the sales in the quarter. Next slide, please. The largest product area in the Garo electrification business area is electrical distribution products, which consists of approximately 3,500 products and turnkey solutions for the electrical installation market. Examples of products are components, safety switches, meaty cabinets, outlet boxes, plugs and sockets, which are products used daily in different applications, such as in new buildings, renovations, marina, camping sites, industry, and immobility solutions. This product area contributed 45% of the group sales in the quarter. Our project business product area provides complete and customized solutions for all types of power supplies for apartments, single-family homes, industry and mobility solutions accounted for 23 of the total sales. The temporary power product area, which has a product portfolio consisting of temporary electricity, lightning, heating and charging products used on construction sites and events accounted for 3% of the sales. These four product areas make Garo's offering unique and easy for the customer. An example of this is when the customer requires a charging solution with different charges and load balancing from immobility, and also requires power supply from project business, as well as safety and installation products from electrical distribution products. These make it easy, simple, and safe for the customer and end user. Now over to Helena for some financial updates. Next slide, please.

Thank you, Patrick. I would like to start by looking at the financial summary for the first quarter. Net sales amounted to 293 million, a decrease of 21%, or 80 million, compared to the same quarter last year. Sales within Garlow Electrification decreased by 16% as a result of the weaker economy in the markets in general. Immobility showed a decrease in sales of 31%. Out of the low sales in the quarter, 65 million are related to the lower sales in the Sweden affecting both business areas. Operating profit for the quarter came in at negative 7 million compared to 28 million for the same quarter last year, which is mainly explained by the low sales volumes. During the quarter, we have performed a savings and efficiency program to adapt the organization for the lowest volumes, but at the same time also be prepared for the recovery in the market. We will start to notice full effect of the program during the second quarter. Also, we have noticed that the sales have somewhat recovered in April as a result of more working days and a slightly better demand in those business areas. Now over to you again, Patrik, for some operational highlights. Next slide, please.

Thank you. Let's start with goal immobility. The prevailing market situation with macroeconomic uncertainty continued to affect purchasing patterns and investment decisions, primarily in the Swedish market. This had a negative impact on the Garo sales. Moreover, some of our major contract customers still have volumes of Garo's product inventory due to the current market climate. Our activity market outside Sweden appeared more positive and showed a growth in the quarter. The beginning of 2024 was hectic for the recent established sales company in Germany. The company made its first delivery of iShred compliant products, which were well received by the customer. Goro will continue to expand the product portfolio for the German market with more ice west compliant products during the year. Goro Immobility therefore intensified its marketing activities in Germany, Poland and Ireland. In addition, we are now established a sales company in Spain. Spain is the fourth largest country in Europe in terms of number of passenger cars with about 27 million cars, and a rapidly growing market for rechargeable cars in the coming years. The first deliveries are expected to commence in the second half of 2024. Garo Entity Compact, the market's only wall-box charging at home that is third-party certified according to the current charging standards in Europe. is facing a market that is under price pressure from other players. However, Goro's uncompromising focus on safety and product development remains firm. Demand for public charging points is the main driver of sales in the business area. We go further on with Goro Electrification. A continued weak economy climate with high interest rates leads to a significant decline in the market for construction of new senior family homes and apartments in Sweden and the Nordic region. Therefore, the demand for product related to house manufacturers was down sharply, and the forecast shows that it will continue to impact the production rate of housing for a period ahead. However, in Ireland, the market for new constructions remains stable, and we see a growing demand for construction-related products. In the market where Goro is active, there is a considerable underlying need for new housing and apartments, and the long-term assessment in the market will gain new monuments in the coming years when the financial situation has stabilized. Demand is relatively healthy for new construction, renovation and energy efficiency in public sector, commercial properties and industry. However, these volumes will not fully compensate for lower volumes in new construction in the short term. During the quarter, Ireland delivered products to a major international computer company with data centers across Europe. The delivery includes components for distribution cabinets that will be placed in the company's server facilities. Growth and probability. During the quarter, an action program was carried out to continue adapting the organization to the prevailing situation. The program reduced number of 40 employees in the group. The action program primarily concerned the Garo immobility business area. The program is expected to achieve full effect in the second quarter. Cost control and efficient organization will remain a major focus area for the entire Garo group. The action program completed in Garo Electrification in autumn 2023 is now yield a desired effect with an organization adapted to the prevailing market situation. And now over to Helena. Next slide, please.

Thank you. And I will continue then by looking at the two business areas separately. And we start with Garo Immobility. Net sales amounted to 84 million in the quarter, giving us a negative growth of 31% compared to last year. When comparing the same quarter last year, it should be noted that the launch of Garo Entity took place during this quarter in 2023, and several large deliveries were done to fill up stock at the customer. Also in the first quarter last year, deliveries were made against back orders of public chargers. All in all, this gives us challenging comparative figures for the business area. In the quarter, sales in Sweden and in the Nordics were down with 49, respectively 43%, compared to the same quarter in 23. Gar is preliminary affected by the market development in the Nordic markets. where we have a significant market share. At the same time, we saw growth of 15% for the other markets in Europe. In general, the markets outside of Sweden feel more positive. And as Patrick mentioned, Garo Immobility is intensifying the sales activities in Germany and in Poland. And furthermore, we are now establishing a sales company in Spain. The operating profit for the quarter amounted to negative 24 million compared to seven, giving an operating margin of negative 28%. Lower sales, weaker gross margin with excess staff in production, as well as an organization that is built for growth, explains indicative results. Also, the campaign activities for the ChargerBox GLB, built on the previous platform, which began in the autumn of 2023, continues. The campaign partly explains the slightly lower gross margin, as sales take place at significantly lower margins for this product. Next slide, please. And then we will focus on Garo Electrification business area. Net sales declined by 16% and amounted to 208 million. compared to 248 in the same quarter last year. The lowest sales is to some extent explained by less working days in the quarter, as the Easter weekend occurred earlier this year. The number of working days affects sales in this business area, as these products are used continuously by the electricians in their daily installation work. A continued weaker economy with high interest rates has meant that the market for new constructions of single-family houses and apartments has decreased significantly in Sweden and in the rest of the Nordic region. However, there is relatively good demand for new constructions, renovation and energy efficiency in the public sector, commercial properties and in industry. But sales in these categories are not compensating for the lower volumes in other areas. During the quarter, Godo Ireland has delivered products to a large international computer company with data centers around Europe. The delivery includes components for electrical distribution boards for server facilities. EBIT amounted to 17 million compared to 21 last year, giving us an EBIT margin of 8%. The efficiency program implemented during the fall of 2023 is having desired effect. Since the end of 2023, GALA is running a project updating our business system, which will enable better processes and collaboration between the group's various units. The cost for this project is fully taken within this business area and has affected the result with 1.5 million to the quarter. In line with price increases on input materials and components, Garo regulates prices towards the customer to the corresponding degree, but where delays in time may affect the margins in individual quarters. Next slide, please. And now following cash flow and balance sheet. Cash flow from operating activities before change in worker capital amounted to 8 million. Cash flow from operating activities after changes in worker capital amounted to negative 44 million. The negative cash flow during the quarter is mainly attributable to reduced operating liabilities. Other items such as inventories and account receivables show minor changes. Tied up capital in inventory decreased by approximately 10 million in the quarter. However, our inventory value is still significantly higher than internal targets and a focus area for the management. Our net debt positions amounted to 278 million compared to 207 in the same quarter last year. We had an equity asset ratio of 52% and available liquidity including overdraft facilities of 85 million. And now back to you, Patrick. Next slide, please.

Thank you. And we go further on with outlook. The market which slowed for both business areas at the end of 2023 is cautious and will remain so during 2024. It was gratifying, however, that the group sales outside the Nordic region showed growth, which supports our investment in Germany, which we entered at the end of 2023. International expansion is important for us, which we have started to establish operation in the Spanish markets. Spain is a country with expansion of the mobility infrastructure and therefore suitable for our products. The transition to fossil-free fuels, as well as energy efficiency systems and services, is crucial to achieve a sustainable development goal, which benefits Garo since its offering is adapting to these current needs. The market for home chargers is affected by prevailing market situations with macroeconomic uncertainty. which is affecting purchasing patterns and investment decisions. The expansion of charging stations for major projects, for example, commercial property, tenant owned associations and public places is expected good, but slow, especially in the Swedish markets. The forecast for 2024 still indicates a cautious market in gallery mobility, followed by a considerable growth in 2025. The current market situation for new construction of single family homes and apartments is expected to persist at least the entire of 2024 in Sweden and the Nordic region. But as I mentioned before, there is a considerable underlying need for new houses and apartments and will gain in the coming years when the financial situation has stabilized. On the other hand, demand for other commercial and public construction combined with renovation and energy efficiency remains favorable. So all in all, we have a positive view of the long-term conditions, mainly driven by growth in charging infrastructure and requirements for power supply. Next slide, please. Thank you all for listening, and we are now ready for questions.

Thank you. If you would like to register a question, please press star followed by one on your telephone keypad, ensuring you are unmuted locally. If you'd like to withdraw your question at any time, you can do so by pressing star followed by two. We will pause here briefly to compile a Q&A roster. Our first question comes from the line of Anton Lund at Kalpa Chevex. Your line is now open. Please go ahead.

Hello, Petra again. Can you hear me?

Yes, we can hear you.

Perfect. A few questions from our side. First, what can you say about the price volume mix in the quarter?

Excuse me, the price?

Price and volume mix in Q1 between the two segments. Can you add any color on that?

You mean between the segments or within the segments?

Yeah, within the segments. For each segment, what can you say about the volume decline and price increases and so on?

Well, if we look into electrification, where we saw the decline then of 16%, if I'm going to make a guess, I would say that perhaps 10% is less volume and then we have, sorry, 20% perhaps is less volume and then we have compensated with price increases by like 5%. Okay. Is that kind of what you were?

Yeah, exactly. And then for e-mobility, what's the next?

In e-mobility, I would say that it's... Maybe a 2-3% price increase, and the rest is less volume, so 34% is lower volume. It's a little bit since we are doing the campaign of the DLB. It's a little bit more difficult to say. Our old platform is difficult to then say what is price, so to say, and what is volume effect.

Sure. That's good. And then in terms of order intake for first half here of Q2, do you see any signs of customer destocking coming to an end?

Yeah, we can see, as we have mentioned before, we can see that our contract customers are coming to one point. They're lowering their warehouses and their stocks, so yes, but that will also, the volume will come quite slightly, and it will not come so quick, but we can see that they have lower components and product in their warehouse, yes.

Perfect. And what can we expect from the Spanish expansion? When can we start seeing sales and so on?

We announced that we will deliver our first product during the second half this year. So I think you don't should expect too much during 2024, to be honest, because we just set the organization and set the company and we will see the sales more during 2025 but of course we will see some sales during 24 but don't expect too much during this year all right thanks

And then one last question from our side. Net debt to EBITDA is increasing rather rapidly, I think from 2.2 last quarter to around 4 if I get it right. How do you view your financial position?

Well, as I said, we have an overdraft of cash, including overdraft facilities of about 85 million. We have a focus on free up cash from our inventory. So, yeah.

Okay. You're confident that you will be able to pay off the debt?

Yes. Yes, you are. Yes.

Perfect. That's all for me. Thanks.

Thank you.

As a reminder, if you'd like to ask a question, please press star followed by one on your telephone keypad. The next question comes from Sophia Stalling of Carnegie. Your line is now open. Please go ahead.

All right. Thank you, Sophia, here from Carnegie. My first question is about the acceleration in the expansion in Spain and Germany. Should we expect any necessary investment ahead due to this expansion?

The investment, so to say, is more in organization. And when it comes to Germany, as we write in the report, we have some more products that we should make ice strength approval. which is ongoing, but not a big investment more than staff or employees, so to say. So no big investment.

Okay. And could you also remind us between different products? Do you focus on the market for home chargers or more destination chargers in Germany and in Spain?

We will focus on destination charging, which is both public, commercial and, of course, home also. But in Spain and in Germany, it will be more project business, tenant-owned associations, industry, and that type of application. But of course, We will also sell to the home market. So destination charging, including home.

All right. And why would you say that Spain is a good market for Garo to enter? And also, if you could give us some more details on how the competition is in Spain versus what you see in the Nordics and also in Germany. Sure.

We have looked into that market for a long time. We looked into several markets. Spain is an interesting country due to a lot of passenger cars. We can see the transaction now starting to happen in the country. We can also see that our production is adapting quite well to the Spanish market. We have a good portfolio for that market. The competition, of course, you have a lot of players also in Spain, but we think our portfolio, our offer suits that market quite well. Therefore, we are entering.

All right. And then I also wanted to focus on product launches. Should we expect that you will launch any new products during 2024 within e-mobility?

In e-mobility, we have made our big launch, so to say, with Galra Entity Compact and Galra Entity Pro, that is third-party certified. Of course, we can expect more, I would say, functionality in that type of product, but I don't think we should, during 2024, maybe see a new hardware product, so to say, but more functionality, and we are now focusing on this product portfolio we have at this stage to get volume on that and maybe fine-tuning and get more functionality.

All right. Okay. And then a question about demand within electrification. I got the impression that it's somewhat stabilized, although at low levels, during Q1. Is that your expectation as well, or do you see that it will be even tougher ahead within electrification?

I think your view is quite correct. We think we are stabilized on a low level, so to say. We think it will increase slowly, quarter by quarter, but we think it will be quite tough during 2024, but it will be better, we think. We get some positive signs in the markets Maybe not new construction yet, that will come later on, but we can see it on energy efficiency, we can see it in industry and in power supply, which we have a good portfolio. But slowly it gets better, yes. And we can also see that our program giving the effect that we wanted. So we think it's exactly as you said, it will be better and better quarter by quarter, but slowly.

Okay. Okay, thank you. And my last question is also about the financial situation. As I calculated the net debt divided by EBITDA, it reached almost 3.9 per Q1. Would you say that is correct? And also, is that something that I know the other speakers were talking about this topic, but is that something that you have included in your covenant levels? And if you can give us some more details on your covenant levels and how you view that this will decrease ahead.

We don't have any covenants of that kind with the bank. And as I said, we are... We are aware of that we have a little bit too much cash set up in inventory values and we are working on it intensively. And at the same time, we still have our overdraft facilities and so on. Okay, and mainly you expect improved But of course, in the long term, we want our net debt to decrease. Absolutely.

Yes. But in the short term, you expect some positive effect within working capital chains due to lower inventory levels ahead, if I understood it correctly.

Yes.

Okay. Yes. Thank you. No further questions.

Thank you.

As there are no additional questions waiting at this time, I'd like to hand the conference back over to Patrick Anderson for closing remarks.

Thank you, everyone, for listening, and I wish you a good day. Goodbye.

Thank you.