CTEK AB (publ) (CTEK) Earnings Call Transcript & Summary

Welcome to CTEK Q3 2023 Report Presentation. [Operator Instructions] Now I will hand the conference over to the speakers CEO, Henrik Fagrenius; and CFO, Thom Mathisen. Please go ahead.

Thank you very much, operator, and a warm welcome to the today's presentation. My name is Henrik Fagrenius, and this is my first presentation with CTEK. For those who do not know me, just a brief background. I have been working previously at Scania with mainly international sales, then as CEO for LEAX, a sub-supplier to the automotive industry. And most recently, before joining CTEK, I was President, EMEA for Dometic. But since the first of September, I'm here at CTEK. And with me today, I also have Thom Mathisen, CFO of CTEK. So before we dig into the results of Q3, I want to just introduce CTEK and what we do. We have mainly to technologies within CTEK is our low voltage, our heritage, and we have EVSE EV charging. We are currently in different customer segments. Consumer, which is mainly 12-volt charging, both for combustion engines, but there is also a 12-volt battery in EV cars. Professional is more to workshop. Then we have client brand, where we have long-standing relations with the main premium car manufacturers. And integrated solutions could be ambulances, caravans, et cetera. And for our EV business, we are mainly focusing on destination charging, public destination charging, portable EV chargers. And then we also have the same business model as in our low voltage for client brand. So we have a large customer in North America at the moment. Where we are producing their EV chargers. Then coming into -- Q3. We have seen that our activities that we started in the beginning of the year to reduce cost has paid and the underlying profitability has improved with 7.7 percentage points, and we see a sequential growth in the aftermarket division. During Q3, we also made an impairment of goodwill of totally SEK 226 million, SEK 60 million we announced last quarter. And that was due to the -- we are reducing the number of EV chargers in the North American market. What is new for the quarter is SEK 166 million within our division, energy and facility. That is according to the -- we bought the company Chargestorm in 2018. And due to the latest market development and higher interest rates we have decided to write off the 100% of the goodwill and other immaterial things for Chargestorm. We have also today announced that we will concentrate our 2 divisions OE and E&F into one, we name it [ 2 professional ]. We are doing this because it's the same business model if you are supplying EV chargers to a big parking operator or to a large car manufacturer. We believe that we have a very good base, both technology and organizational to supply EV chargers to business-to-business customers that are handling the first line of support themselves, and we are, of course, there for the second line of support. We also see the synergies in both organization but also in technology to this. Due to this, we have a one-off cost of SEK 12 million for inventory write-offs related to home charger components. I'm happy to say that our plans to start production in Mexico is according to the plan. We will start to deliver in Q4 directly from Mexico to our North American customer when it comes to EV chargers. And we have also expanded long-term partnership with global sport cars manufacturer, and we have launched the first customized version of our CS ONE. Over to you, Thom.

Yes. Then coming to some key financials for the quarter, both for the group level and some short words from our current three divisions as well. So starting on the top line net sales, you can see that we have compared to the same quarter last year a decrease of around SEK 20 million. And that comes mainly from the EVSE part, whereas the low voltage part has come at the same pace as last year's same quarter. And the majority of this is coming from the lower activities in E&F, the construction sector, coming back to that later on and also less of the supply to the North America customer in OE. We see also increased gross margin but a good mix, of course. But also coming from the activities we have done both where we have less of air freights, less of things like that. So have stabilized our gross margins. Have good gross margins in primarily the LV sector. Together with the cost reduction program that Henrik mentioned, it means and that we keep the adjusted EBITDA almost on the same level as last year despite the lower volumes on the SEK 18.2 million versus SEK 21 million last year, which is promising going forward and an increase versus quarter 2. As Henrik also mentioned, bottom line is, of course, heavily impacted by the noncash impairment during the quarter of around SEK 226 million. Some comments then on the respective division. So aftermarket, as you can see stems for 2/3 of the turnover in the quarter. So it's our largest division have been stable. Same volumes as last year, basically, and continuous good and stable margins. And we can also see from the graph on the left-hand side, it's a sequential growth from quarter 2 and upwards. Coming to OE division that consists of a -- as you can see on the graph to the right-hand side, we have around 20% EVSE in that and 80% low voltage. We can then say that the low voltage side, it's basically very stable, both volume-wise and margin-wise, whereas we have lower EVSE volumes due to less of deliveries of the EV charger to our big North American customer. But you can see that adjusted EBITDA has increased from around 11% to close to 18% compared to the corresponding quarter last year. Then finally, on the divisions, we have the E&F Energy & Facilities division. And here, we are facing challenges on the net sales side. We're going down about 40% compared to last year. And this is related to the less of activity in the construction sector and especially in the Nordics where we are quite heavily dependent on the general economics. With these lower volumes, of course, margins and the EBITDA margins are also challenged and quite a huge losses related to this division. Henrik will come back to how we address this going forward later on in this presentation. Then finally, some words on our main focus area during this year. Together with cost savings, we have had a strong focus on cash flow. So even if the quarter in itself shows a little bit of a negative operating cash flow of SEK 14 million, we will highlight that accumulated for the year, we are plus over SEK 60 million compared to minus SEK 10 million last year. And together with the activities we have to come back to more normal levels of CapEx. You can see from the graph on the bottom side of the slide, we also see that our cash flow after investments are now close to SEK 100 million better than last year at the same period. So improvement as per plan on the cash flow side. And we foresee also a positive operating cash flow for quarter 4. So with that, I hand over to you again, Henrik.

Thank you, Thom. And if we summarize and these are activities that we have previously communicated, and we are following our plan when it comes to reduction in workforce, including consultants, we have a goal by the end of the year of SEK 230 million coming from SEK 300 million in the beginning of the year. And at the end of Q3, we were at SEK 230 million. OpEx, we have reached our target of the run rate of SEK 80 million and development costs, we are well on the way towards the goal of SEK 80 million. We are currently standing in our run rate of approximately SEK 95 million. And as Thom mentioned, a high focus on cash flow, and we have improved that with about SEK 100 million so far. And we are looking at continuously improvement also for Q4. As we mentioned before, we are launching a reorganization. We are combining the 2 divisions, OE and E&F into one, and we're naming about [ 2 professional ]. The reasons for that is that we will have a greater focus on B2B customers. And the business model is the same if it's a big car manufacturer or if it's a big parking operator. They take care of the first-line support. We are there for the second line support, and we will also see synergies in organization and also in technologies. It's the same base platform for the EV charger if it is a destination charger or if it is a client brand charger. Our aftermarket division, we will keep that as is, and we just renamed it to consumer, which is more in line with the end segment where we are supplying to. So as a summary, if we take the group, the cost reduction activities are running according to plan. We stand by our previous assessment to be operating cash flow positive for the year. And when it comes to the divisions, I would say that in our consumer divisions, we have high and stable margins. We see a sequential quarterly growth and in the previous OE division, we now see that we have addressed the issue of lower profitability for the EV chargers to North America. We will, during Q4 start the production in Mexico and that will have substantial cost benefit for us. And then in E&F, we are now focusing on that to also turn that division positive and by combining that with the OE. We still see a very good long-term growth in the EVSE products. And we believe that with this change, we will stand ready to meet that growth for the future. With that, I open up for questions.

[Operator Instructions] The next question comes from [ Pauli Lohi from Indeas ].

Could you give us some more color on the markets of destination charging. Are you seeing a decline in activity in all your European markets and not just Sweden, Also, the number of EVs is still growing fast. So how long do you think this market slowdown situation may last.

Thank you. We are, for the moment, very exposed to the Nordic markets, and we see there quite a dramatic decline in the quarter. And we see that also for the whole branch also our competitors. When it comes to the rest of Europe, we will, during next year, launch products that are combined for the bigger markets. And we are there concentrating on the pan-European parking operators and will enter the European markets together with our customers.

Then my next question is about car manufacturers. We have seen, for example, GM and Ford postpone their investments on EV manufacturing this fall -- does that impact on your sales outlook for next year in the original equipment?

Yes, there has been a slower ramp-up from our North American customer. And of course, that will impact our sales -- so I think the best information you can get from there is from our customers' own prognosis for next year.

The next question comes from Johan Eliason from Kepler Cheuvreux.

Just starting with the good part of the low voltage and especially in the aftermarket, pretty stable now and sequentially growing as you point out. If you look on a year-on-year perspective, how much is price versus volume for the low voltage business in the aftermarket division?

For the full year, accumulated, we are still behind last year in volumes. We had what we think is a quite big destocking in the first half of the year. What we can see on the margin side is that it has been continuous improvements, less of spot buys as before, less of air freights and also -- and that -- and also price increases we have done during end of '22 and beginning '23 as well. So margin stable volumes coming back as we see it.

But you would say that pricing is still sort of positive year-over-year in Q3 to some extent because you indicated you were adding price hikes in the beginning of this year as well?

That's right. That's right.

And with your own inventories on the 12-volt side, are you happy with those? Are they fine and where they should be?

The inventory levels. Yes, I think it's as is in this business, we are selling via stock. So we need to have some stocks around the globe. But pretty healthy. We have some products, new launches that we have maybe a bit high stocks, but we are working with them. So all in all, okay, on the LV side.

Good. Then as I understood it, the Mexico plant was mainly for your EVSE products in North America. There's no low voltage products planned for that supply source or?

We start with the EV production in the Mexico plant. But of course, there is also a possibility to move low voltage products into that plant.

Because I guess you still have some tariffs from China on those products?

Yes, that's correct.

Okay. Good. Let's look at the EVSE side and, obviously, a bit of a disappointing development and partly blamed on more delays again on the EV rollout in North America. But this plant in Mexico, what benefits will it bring to you? Are you selling at the same price to your U.S. customers? So all the sort of cost and tariff benefits, logistics, et cetera, will drop down to your P&L? Or is there also some sort of burden on tariffs shared with your customer already today?

No. All that benefits will land in our books.

And if you think about the gross margin, what could it be to you on the EVSE products? Would it be 100 basis points or 500 basis points? Or what are we talking about the U.S. supplier?

We are not going into those kind of details per product group, but it is an essential cost benefit for us. The tariffs you can read about. And then, of course, there are some increased costs, but the gross net for us is positive.

And then cash flow, I see here you are recreating that you expect full year operating cash flow to be positive and also in Q4. In the fourth quarter, what are the main drivers? Is it improved profits? Or are you still releasing -- expecting to release cash from inventories and similar?

Yes, we are continuously decreasing inventories during the year. We have also in quarter 3 actually reduced our inventories. So we can see now that during quarter 3, we increased the sales versus quarter 2, especially at the end of the quarter and that will, of course, turn into cash during quarter 4. So we expect, as we said, to be cash positive also in Q4.

Okay. And is that also after CapEx? Or is it just before CapEx?

What we promise is operating capital positive. And then, of course, we always thrive for having a positive cash also after CapEx.

And then -- on the NJORD GO product, which I always thought was quite interesting. The volumes have not at all been particularly exciting, or you are seeing any movements on the NJORD GO product directly to the consumers? Or is it wrong priced for this mobile opportunity that it targets?

No, I think it is a very interesting product. And during the quarter, we introduced NANOGRID AIR, which is a wireless load balancing system that you can pair with your NJORD GO. So now from now on, we have a complete offer to our consumers. So -- and we have seen some pickup in sales as well.

[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

Thank you very much, and thank you for listening in to this Q3 result. And just to reiterate, we are happy to see about our activities to reduce the costs are paying off. We see a better profitability compared to Q2. And we also see that with the move to Mexico, we will see substantially better margins for our EV charger for North America. And with the new organization, we also see that we are spending very good for the growth in the EVSE segment going further. So thank you very much. Goodbye.