Garo Aktiebolag (publ)

Welcome, everyone, to the presentation of Goro's Q2 report 2024. My name is Patrik Andersson and I'm the CEO of Goro. And with me today, I have Helena Claesson, our CFO, to present the financial performance. Next slide, please. We will, as usual, start with an introduction of the company. After that, the Q2 report and outlook. And in the end of the presentation, comments on the press release we launched this morning. So let's start with an introduction. GORU is a company founded in 1939 that develops and manufactures and sells innovative products and systems for electrical installation under own brand in the European markets. Developing products that are in the forefront has always been a significant aspect of our success. Our focus in developing user-friendly and safe product with a modern design and long service life. There is market demand for product and solutions to assist in establishing a fossil-free society in which a growing number of players are becoming conscious to the 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, GORO Immobility, which consists of the immobility product area, and GORO Electrification, which includes the electrical distribution products, project business and temporary power. We have operations in Sweden, Norway, Ireland, Finland, Poland, the UK and Germany, and the establishment of our sales company in Spain which we announced in the previous interim report, is in progress as planned. We also sell in other European countries where we don't have own subsidies. We have production facilities in Gnosjö and in Hillestop in Sweden, and in Szczecin in Poland, where we moved into new production and logistics facilities in summer 2023 to meet the European demand for immobility products in the coming years. and we are approximately 420 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 product and turnkey solutions for destination charging for various locations, including at home, in public, at workplaces and along the highway. To make the mobility business even more complete, we also offer service agreements to assist our customers with annual service updates, etc. 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 total sales in the quarter. Next slide, please. The largest product area in the Goro electrification business area is electrical distribution products, which consist of approximately 3,500 products and turnkey solutions for the electrical installation markets. Examples of products are components, safety switches, meter cabinets, outlet boxes, plugs and sockets, which are products used daily in different applications, such as as new building, renovation, marina, camping sites, immobility solutions, etc. This product area contributed for 45% of the group sales in the quarter. Our project business products are provided complete customized solutions for all types of power supplies. For apartments, single family homes, industry, immobility solutions accounted for 23% of total sales. The temporary power area, which is 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 areas make Goros offering unique and easy for the customer. An example of this is when the customer requires a charging solution for different charges and load balancing from immobility, and also requires power supply from the project business, as well as safety and installation products from the 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, Patrik. And I would like to start by looking at the financial summary for the second quarter. Net sales amounted to 306 million, a decrease of 21% compared to the same quarter last year. Sales within Goro electrification decreased by 5%, and the sales within Goro immobility showed a decrease in sales of 45%. The market for business Both business areas have remained cautious in the first half year of 2024. The lower sales volumes in the quarter are mainly due to a cool market in immobility, where sales have been low in Sweden, but also to our international contracts. Operating profit for the quarter came in at negative 4 million, compared with 18 million positive for the same quarter last year. And this is explained by the low sales volumes. Now back to you, Patrik, for some operational highlights. Next slide, please.

Thank you. And we go further on with operational highlights. And let's start with GORU immobility. The prevailing market situation with macroeconomic turbulence continues to affect the purchasing patterns and investment decisions. And the recovery of immobility market is proceeding slower than expected. particularly in Sweden. Moreover, some of our major contract customers still have product in inventory due to the current market climate. To summarize the market situation, we believe that the market will slowly improve and the outcome of 2025 is more positive. However, in the second quarter, the group sales outside the Nordic region again posted growth, which support our continued investment in Europe on our recent establishment in Germany and Spain. As a part in this investment in Germany, Garo has decided to obtain Eichret certification for our Wallbox Garo entity and the factory in Poland. Our long-term vision for the market remains unchanged. We believe the transition to electrical vehicles and the need for destination charging and increasing activities noted during the quarter regarding inquiries from the expansion of charging station for projects, for example, commercial property, tenant-owned association and public places. We go further on regarding electrification. A continuing weak economy climate, impacted by macroeconomic factors, has led to a low production rate in the market for construction of single-family homes and apartments in Sweden and in the rest of the Nordic region. This need is driven by new construction, renovation, energy and chasements, which turn and create a need for both standard and customized products in Garo Electrification. The weaker construction market in Sweden is expected to continue for the entire year of 2024, but is expected to recover gradually during 2025. The interest rates cuts, both from this plan and this already initiated, are expected to have a positive impact on house construction and investment willingness, and will result in a gradual increasing demand for Goro Electrification products. Demand in relatively healthy for public sector, commercial and industry purposes. That market is connected to the electrification of society and green transition is assessed to be stable. In Ireland, which is an important market for Goro, both the market of Goro performed, sorry, Sorry, something happened with the digital here. ...performed well in Q2. This trend was partly attributed to a broader product range that is able only to address a price-sensitive market, but also to create a possibility for improvement margin. The temporary power product area with power supply products for construction process Note that a growth of 12% compared to year earlier quarter. We go further on to growth and profitability. The action program at Goro Electrification completed in autumn 2023 had a desired effect and the business area was able to present an improved EBIT margin of 9.2% in the quarter. This will still be a focus area for the business area. In addition to already implementing an efficient program in mobility during Q1, and as a result of the current market situation, we will continue to adapt cost and other part of the organization to demand in various geographical markets. Within the business area, we're also placing key focus and reducing our inventory level. The three product areas include GORO electrification, together with GORO immobility, create synergy effects and provide a stable foundation for GORO operation, which is particularly important during times of sluggish demand in some product areas. Small and large complex projects or require product and service from several of our products area. And now over to Helena. Next slide, please.

Yes, and I will continue with the two business areas separately. And as usual, I will start with Gardo Immobility. Net sales amounted to 84 million in the quarter, giving us, as I said, a negative growth of 45% compared to last year. The current market situation with macroeconomic uncertainty continues to affect purchasing behavior and investments, particularly in the Swedish markets. Markets outside Sweden feel more positive and we continue our investments in Germany and Poland. When comparing with the same quarter last year, one should also keep in mind that the large deliveries of public charges for international accounts were made in 2024. And this gives us challenging comparative numbers for the business area. Sales in Sweden and the Nordic countries showed a negative growth of 66, respectively 48% in the quarter compared to last year. Goro is preliminary and affected by the market developments in the Nordic markets, as we have significant market shares there. At the same time, we noticed a growth of 3% for other markets in Europe. The French market, as an example, has shown great interest in Goro's 43 kilowatts charger for heavy vehicles, which resulted in orders during the quarter. The operating profit for the quarters amounted to negative 25 million, giving us an operating margin of negative 28%. The combination of low sales, weaker gross margin, production redundancies, and an organization built for growth explains the negative results. Next slide, please. And then we continue with Garu Electrification business area. Net sales amounted to 222 million in the quarter, giving us a negative growth of 5% when comparing with the 234 for last year. The market for new constructions of single houses and apartments remain at a low production rate in Sweden and in the rest of the Nordic region due to the continued weak economy influenced by macroeconomic factors, as Patrick mentioned before. However, it is our opinion that the market has bottled up. Positive signs such as lower inflation, a falling interest rate levels are expected to lead to a rebound in housing constructions in 2025. During the quarter, we have received two large orders for engine heaters to be delivered to the north of Sweden in the coming Q3. EBIT amounts to 20 million, compared with 14 in the same quarter last year, and this gives us an EBIT margin of 9%. The efficiency program within the business area had had the desired effect, which can be noticed in the improved operating profits. Also in Ireland, an important market for Garo, both the market and Garo performed strongly during the second quarter. To summarize, one could say that the business area Gauru Electrification has had a stable quarter, while Gauru Immobility continues to face challenging market conditions. Next slide, please. And now over to the cash flow and balance sheets. Cash flow from operating activities before changing working capital amounted to negative 2 million. and the cash flow from operating activities after. Change in working capital amounted to negative 9 million. The tied up capital in inventory increased net by 12 million, and as Patrick mentioned, the high stock value is the focus area for management. Furthermore, we have a deposit with the supplier for materials. At the end of the period, the deposit amounted to approximately 45 million, And this includes an increase of $5 million done in the quarter. Our net debt position amounted to $293 million compared with $309 in the same quarter last year. We had an equity asset ratio of 49.6% and available liquidity including overdraft facilities of $65 million. Now back to you, Patrick. Next slide, please.

Thank you. And we go further on with the outlook. The recovery of the mobility market is proceeding slower than expected, particularly in Sweden. We expect a lower growth in the mobility market in short term. Our long-term vision in the market remains unchanged. We anticipate a major transition to electrical vehicles, increasing the need for destination charging, The transition for fossil-free fuels as well energy efficiency system and service is crucial for achieving sustainable development goals. The construction of new housing in the Nordic region has declined considerably in the last year, and new production of single homes and apartments is expected to be weak through 2024. On the other hand, the demand of other commercial and public construction combined with renovation requirements and energy efficiency remains favorable. Demand outside the Nordic region showed growth, which is supporting our investment in Germany and the ongoing establishment in Spain. To summarize, we believe that the market will gradually improve for both business area and that outlook for 2025 is more positive. Next slide, please. This morning, we press released that Garo has started a recruitment of a new CEO. This is a decision that the board and I totally agree upon. And the reason for that is that Garo needs a new leadership for the coming phase, which will be growth oriented and to capitalize on the investment made. During this time, I will remain a CEO until the replacement takes up the position, which is expected to start in the first quarter in 2025. Next slide, please. Thank you for listening, everyone. And me and Helena is ready for questions.

Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch on telephone. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Anyone who has a question may press star and one at this time. Our first question comes from Johan Skoglund, NDNB Markets. Please go ahead.

Good morning, Patrik and Helena. I just have one short question. I noticed in your annual report that you have covenants tied to the working capital to sales ratio. Could you please elaborate a bit here? Is this tied to any specific initiatives of reducing inventories, for example, selling old chargers or something else? And the second part of the question could be if you perhaps could comment on what headroom you currently have to these covenants.

We have a covenant correct of networking capital in relation to turnover involved in 12 months and with a first measuring point now in June. Gauru at that time was in breach of that KPI but we had a waiver. Yeah, nothing special.

Okay, good, thank you. Okay, no, just curious. Just curious if it's a Titan initiative, for example, are you selling out your old chargers or what are your plans on kind of meeting those covenants?

Oh, this is just, it's a combination of different actions, I would say, but the majority, I would say we have three covenants. things to work with, as you say, it's the stock levels, and then we have the payables and receivables. And we're focusing on all three of those. But with a declining sales, as we have had, the relationship becomes sort of said, so becomes tougher. So we are a little bit so to say, punished in the KPI due to the Not so much the network and capital as such, but also in relationship to the weaker safe, if you look back, sort of.

Okay. Well, thank you so much for the clarification.

Once again, to register for a question, you may press star and 1. Our next question comes from Martin Lund, Please go ahead.

Hi, Patrick and Helena. Can you hear me? Yes, we can hear you. Perfect. So one question from my side. In electrification, you mentioned two larger engine orders are expected to be delivered in Q3. Can you say anything about the size and the margin on those?

The size is around six, seven million SEK for that. And I don't have exactly the margin of that business, to be honest. But that will be approximately in line with our other margins. So it's not a lower margin business, so to say. So it's ordinary business for us.

Perfect. Thank you. And then you also mentioned that you continue to adapt your expenses within e-mobility. Do you have any additional cost savings program in mind or can you add any favor on this? Thanks.

As I mentioned in the presentation, we had a program in Q1 that we have closed, so to say, but of course, due to the market situation, we will look over all the different cost possibilities and manage this in the best way. So we will look through different things to do to make this business profitable.

Okay, and the previously mentioned cost program within e-mobility, The number of employees seem to be rather flat over quarters. Would you say that the cost savings turned out aligned with what you previously commented?

The cost saving program that we presented is in line with what we have presented, yes.

Perfect. That's all for me.

Thanks.

For any further questions, you may press star and one. Ladies and gentlemen, we have no further questions at this time. Let me hand over back to the management for any closing remarks.

Yeah, thank you everyone for listening for our quarterly report and I wish you a great day. Bye.