Garo Aktiebolag (publ)

Welcome everyone to Garo's Q2 presentation. I am Jonas Claren, CEO, and it's great to be here today. With me is Helena Claesson, CFO, who will walk you through the financials later. But let's start with the key highlights for the quarter. Next slide, please. Operation and highlights. I want to start by emphasizing that Team Garo continues to move from structure to execution. We have a clear direction and an increased operational pace. Garo electrification, growth areas. We see continued volume growth and a strong performance in Ireland and the UK, alongside early signs of stabilization in Norway. Stable demand. Demand in commercial, public, and renovation projects remains stable. Challenges. However, the Swedish residential construction market remains weak, and the segment continues to face pressure. Improvements. Outside Sweden, margins are improving in several markets, and we are focusing on expanding our product portfolio to reach new market segments. Outlook. The outlook remains stable with continued discipline on margins. Garo Immobility. Headwinds. The market remains challenging, particularly in Sweden and Germany, with delayed investment decisions. Actions. We have completed cost reduction measures, optimized inventory, and shifted to a more focused go-to-market strategy. Sales drivers. AC destination solutions are returning to growth, and sales of our Garo entity platform are going in the right direction. Progress. We have signed strategic framework agreements for a larger infra project in Upland, and with us discerned municipality for both stronger market references. Outlook. The outlook is for gradual recovery in public charging, especially AC charging. Strategic focus. Leadership. On the leadership side, I have taken on an interim responsibility for e-mobility, and we have appointed a new country manager for Sweden. Integration. We now will have clearer priorities and joint action plans for each business area and country. Readiness. Financial control has improved and we have repaid part of our credit facility and lifted the special covenants from our bank. Innovation. We continue to adapt to new market requirements, including UK cybersecurity standards. Outlook. Long-term growth drivers remain intact and we are focused on execution and profitability while keeping short-term caution. In summary, we are delivering on our plans, making strategic moves in the right direction, and preparing Garo for the market recovery we know will come. And now over to you, Helena. Next slide, please.

Thank you, Jonas. And I would like to start by looking at the financial summary for the second quarter. Net sales amounted to 266 million, a decrease of 13% compared with the same quarter last year. The uncertain and varied market situations continue to affect sales in the quarter. Garo Electrification as business area showed a stable business, but the demand in Sweden was weaker than expected. Immobility remains challenging, not least in Sweden. We noticed a lag in order intake and also that some new product categories have not yet made an impact on the market. Gross margins have been at similar levels to previous quarters, where strong margins within GORO electrification has been offset by lower gross margins within GORO immobility. The adjusted EBIT for the quarter amounted to 1 million compared to negative 4 in the same quarter last year. Next slide, please. And now let's look into the two business areas separately, and we start with Garo Electrification. Net sales dropped with 7% compared with the same quarter last year and came in at 206 million, where the overall market for electrification business area was mixed. While Sweden experienced a significant decline, preliminary in the product area project, our market managed to exceed expectations. Our sales to Europe, excluding the Nordic countries, showed a growth of 10% in the quarter, and sales in Ireland continues to be very strong. The market for new construction of single-family homes and apartments in Sweden remained at a very low level during the full first half of this year. Positive signs such as lower interest rates and expected falling inflations are overshadowed by negative global uncertainty related to tariffs and escalating conflicts in various parts of the world. Sales within our product area project and temporary power both decreased by 19% compared to the same quarter last year. The entire decline in the sales within the product area project is attributable to Sweden, while the other markets actually have a positive development, albeit from lower volumes. Adjusted operating profit, also the EBIT for the period, amounted to 15 million compared to 20 in the same quarter last year. Adjusted operating margin came in at 7.4% compared to 9.2%. The ongoing ERP project is burdening this business area, which together with the pressured prices and lower sales in the product area project explains the lower profitability. Next slide, please. And now we move on and focus on the Garo immobility business area. Net sales amounted to 61 million for the quarter, giving us a negative growth of 24 million compared with the same quarter last year. Goro Entity, the new charging platform, accounted for the larger part of the business area's total sale in this quarter. This is a statement of strength and confirms the market's reception of the platform, which has now reached good technical stability. Gaara has signed a framework agreement for a larger project within infrastructure to deliver a large number of charging stations and also some DC fast chargers. The agreement constitutes a strategic reference for the future strengthens of the position with charging infrastructure connected to Sweden's critical energy supply. Furthermore, in collaboration with the wholesaler Rexil, Garo has signed a multi-year agreement with Östersund municipality. This agreement includes the installation of approximately 700 charging points spread across the municipality. The adjusted operating profits, also the business areas EBIT for the quarter, amounted to negative 14 million and is entirely explained by the low sales. Next slide, please. And now let's look a little bit on the cash flow and balance sheet. Cash flow from operating activity before changing working capital amounted to 0.3 million. Cash flow from operating activities after changes in working capital amounted to 9 million. Tied up capital from inventories decreased net with 4 million. We have a deposit with the supplier for materials ordered, but not yet called off. The deposit being in euros has remained unchanged during the quarter and amounted to the equal length of 44 million. Our net deposition amounted to 279.6 million compared with 293.2 in the year earlier quarter. We had an equity asset ratio of 51.4% and available liquidity, including overdraft facilities, of 75 million. And also, as Jonas referred to earlier, as a result of improved cash flow over time, Goro's separate bank covenants ended on June 30th. In July, the availability of overdraft facilities was reduced and 2.4 million Euro was repaid. And now back to you, Jonas. Next slide, please.

Thank you, Helena. Navigating change, strengthening Sweden for the future. Sweden is the heart of Garo. Success here strengthens the whole group. Niklas Rönneng has, as I said earlier, decided to leave immobility, and I sincerely thank him for his dedication and contributions. but to ensure stability and a clear direction, I would take on the interim leadership of e-mobility. We are also merging the two Swedish sales organizations, Electrification and e-mobility, into one national organization. This removes duplication, increases collaboration, and gives us one clear face to the market. Daniel Emilsson becomes country manager of Sweden with full responsibility for sales, support, marketing, personnel, and results. With his 18 years in Garo, Daniel has the experience and the relationships to succeed. The aim is a stronger, energized sales team closer to customers, capturing synergies across our four product areas. We are also creating a Swedish steering group, sales, operations, R&D, HR, and finance, ensuring aligned cross-functional decisions. These changes are about a stronger foundation in Sweden, enabling faster growth, both at home and internationally. Next slide, please. Execution path. As I showed you before, we have laid the foundation in Q1. Structure, governance, and leadership in place. In Q2, we moved into alignment and strengthening with early results from integration. Now in Q3 and Q4, we move into integration and acceleration, embedding transformation into daily operations. We are fine-tuning the plan as we move forward with the finalization in the budget and strategy process later this year. The message is simple. We are staying the course. Next slide, please. Outlook, staying the course, ready when the market turns. In Q2, we saw a clearer increase in operational pace after the leadership changes earlier this year. We made the decision to restructure and integrate Swedish sales operations and now changed and implemented as we speak in Q3. Electrification performed strongly in our international markets, even though the Swedish residential sector remained weak. Our cost control measures and inventory optimizations are delivering results with improved cash flow and EBIT back in positive territory. In e-mobility, LS4 solutions and our entity platform are gaining renewed traction for the year, and the strategic contracts are strengthening our market position. Looking forward, I will take the interim leadership for e-mobility to ensure stability and clear direction. We will fully implement the Swedish sales integration under Daniel Emerson, and the market recovery is slow, however, but we are seeing early signs in both housing and charging infrastructure, and the long-time driver's electrification, energy efficiency, and infrastructure remains strong in our focus. Koro is ready to accelerate when conditions shift and we have the ability to adapt quickly, act with discipline and always move with purpose. Thank you. And next slide, please. Questions.

Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad now. If for any reason you want to remove your question from the queue, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. Our first question comes from Sofia Soling from DMB Carnegie. Your line is now open. Please go ahead.

All right, thank you. Hi, Jonas and Helena. Can you hear me?

Yes.

Great. Okay, so I have a couple of questions. I will start with the focus on the e-mobility segment. Could you give us a little bit more details on your strategy ahead within this business area? What will be your main focus point?

For sure, the main focus point will be sales as we now have a fully functional platform. And that goes for all our countries. So as you all know, we have struggled a few years now with the functions. And now we have a very good product ready to accelerate in sales.

All right. And you mentioned, could we expect, for example, new product launches ahead, or will you expand on already developed products?

That's correct. That is hard to say. I mean, if you're asking merely for the e-mobility segment, there will always be upgrades, such as plug-and-play, plug-and-charge, you can call it, and also vehicle-to-grid that we are working on, like all other players in the market.

All right, okay. But a more explicit question, then, could we expect that you will do any product launches within e-mobility during the second half of 2025, or will that be more expected into 2026?

I don't think we will launch any new products. We have to wait a bit more for the markets, as we are seeing that there still needs to be a more push of larger sales in the segment, I would say. So we have a good platform, and electrical safety is the driver for Garo, and we will continue to work on that.

Okay. But also, if I continue with e-mobility segments, so the expansion into Germany and Spain, could you give some more details on that type of strategy ahead?

The expansion is somewhat... We are just waiting for the market, you can say. Germany has still been a slow-moving market, and that is mainly why we haven't allocated the resources to make the bigger move on Spain yet, because we want to see that Germany, for us, is moving before you shift focus and move even more onto other markets.

Okay.

Okay. And if we go to electrification, it seems like it's still quite a weak market, especially in Sweden, as you mentioned in your report and your presentation. But can you give any reflections on the current renovation market, if you see any changes regarding perhaps capex investments? Among commercial or residential buildings, have you seen any change now compared to previous quarters or perhaps the same period last year? Perhaps difficult for you to say since you're a new CEO, but have you seen any change in the capex appetite among your end customers, so to speak?

What we have seen and what we have experienced, as we have discussed with some of you analysts before, is that electrical is the last thing that is put in in the new buildings. As we are supplying products, we have been the last, so to say, in the food chain of this generation. following years here so what we haven't been experienced now is basically almost two years after the big drop we are at the tip of the tail of the civil engineering face so our drop this year is basically that we have caught up with the market but of course we are very active in out on the sales now and speaking to engineering firms that is also again now preparing a lot of new projects that will be coming as we see but then again it will take some time before the electrical material will be bought and put inside of the new buildings so the drop has been around 70,000 newly built was the baseline three years ago, and it has dropped to around 30,000 or 28,000. So we are following that closely to see when it will be turning. But we see that there will be a move forward. When it comes, it's hard to say.

All right. Okay. Let's see. We'll go to the next question here. Just on your financials there, you mentioned that the covenant was ended, the covenant linked to the cash flow was ended by end of June. Can you give some more details on this? Should we expect that you will not have any covenants? ahead or is it positive? Why does the bank agree on ending this covenant?

When we went into an agreement with the bank regarding covenants, I think it was fall 2024 for the upcoming year or so. And that was based on our cash flow improving over time. and that agreement were in place until june this year and we sort of say we have fulfilled our obligations and met the kpis towards the bank and so this was just a sort of say a result of the entered agreement with the bank and the measures we did last year has also fall into place yes If we were to enter into new agreements with the bank, I would say that would depend on other activities within Garo.

Okay. But you haven't any new agreements with the bank now? No. Okay. My last question is about the cost measurements. You mentioned a little bit in the report that you will cut some costs perhaps in e-mobility, improve profitability. But are there any more cost measurements you actually can do now and you can talk separately with the electrification and the e-mobility?

Or is it just necessary with sales to increase ahead? No, I would say that if we start with electrification, we did two, so to say. cost saving programs in 2024 relating to those staff within production and elsewhere and they have had desired effect and that sort of say the weaker margins within that business area right now is as explained due to the ERP project and weaker sales within certain product groups project being one of them I would say that it will not be any more cost reductions. More or less the same goes for the business area in mobility. We made a big saving program late 2024 which has come into place and if you compare the quarters I would say that yes we are following that. We are on the OPEC side saving somewhere between 4 and 5 million per quarter which is what we communicated and the result or the EBIT levels we are at right now is fully explained by low sales volume. This is, as Jonna said, this is not the volumes we would like to have. And something we are focusing on.

All right, the ERP project cost, how much was that in Q2?

It varies a little bit, but right now we are entering into a more intense period. Hopefully we will launch the new ERP in the beginning of next year. So somewhere perhaps between one to two million per quarter.

Okay. All right. Thank you so much for answering all my questions.

Thank you, Sofia.

Thank you. As a reminder, to ask a question, please press star followed by one on your telephone keypads. That's star followed by one. We currently have no further questions, so I'll hand back to Jonas for closing remarks.

I just want to thank everybody for listening. Stay tuned for the Q3 report. in a few months' time as we are continuing the course. Thank you.

Thank you.