Garo Aktiebolag (publ) (GARO) Earnings Call Transcript & Summary

Hello, and welcome, everyone, to the GARO Interim Report April to June 2025. My name is Becky, and I will be your operator today. [Operator Instructions] I will now hand over to your host, Jonas Klaren, CEO, to begin. Please go ahead.

Welcome, everyone, to GARO's Q2 presentation. I am Jonas Klaren, 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. Operational highlights. I want to start by emphasizing that team GARO continues to move from structured execution. We have a clear direction and an increased operational pace. GARO Electrification growth areas. We see continued volume growth and the strong performance in Ireland and the U.K., alongside early signs of stabilization in Norway. Stable demand. Demand in commercial, public and renovation projects remained 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 E-mobility. 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 Uppland and with the Ostersund 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 listed a special covenant from our bank. Innovation. We continued to adapt to new market requirements, including U.K. 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 brands, 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 SEK 266 million, a decrease of 13% compared with the same quarter last year. The uncertain and varied market situations continued to affect sales in the quarter. GARO Electrification as business area showed a stable business, but the demand in Sweden was weaker than expected. E-mobility 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 markets. Gross margin has been at similar levels to previous quarters where strong margins within GARO Electrification has been offset by lower gross margins within GARO E-mobility. The adjusted EBIT for the quarter amounted to SEK 1 million compared to negative SEK 4 million in the same quarter last year. Next slide, please. And now let's look into the 2 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 SEK 206 million, where the overall market for Electrification business area was mixed. While Sweden experienced a significant decline preliminarily 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 inflation are overshadowed by negative global uncertainty related to tariffs and escalating conflicts in various parts of the world. Sales within our product area projects 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 SEK 15 million compared to SEK 20 million 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 up and focus on the GARO E-mobility business area. Net sales amounted to SEK 61 million for the quarter, giving us a negative growth of SEK 24 million compared with the same quarter last year. GARO 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 been -- which has now reached good technical stability. GARO 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 strength of the position with charging infrastructure connected to Swedish critical energy supply. Furthermore, in collaboration with the wholesaler, Rexel, GARO has signed a multiyear agreement with Ostersund municipality. This agreement includes the installation of approximately 700 charging points spread across the municipality. The adjusted operating profit, also the business area's EBIT, for the quarter amounted to negative SEK 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 change in working capital amounted to SEK 0.3 million. Cash flow from operating activities after changes in working capital amounted to SEK 9 million. Tied up capital from inventories decreased net with SEK 4 million. We have a deposit with a supplier for materials ordered, but not yet called off. The deposit being in euros has remained unchanged during the quarter and amounted to the equivalent of SEK 44 million. Our net debt position amounted to SEK 279.6 million, compared with SEK 293.2 million in the year earlier quarter. We had an equity asset ratio of 51.4% and available liquidity, including overdraft facilities, of SEK 75 million. And also, as Jonas referred to earlier, as a result of improved cash flow over time, GARO's separate bank covenants ended on June 30. In July, the availability overdraft facilities was reduced and EUR 2.4 million 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 Ronnang has, as I said earlier, decided to leave E-mobility 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 2 Swedish sales organizations, Electrification and E-mobility, into one national organization. This removes duplication, increases cooperation and gives us one clear face to the market. Daniel Emilsson becomes country manager 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 4 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 clear 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 Emilsson and the market recovery is slow, however. But we are seeing early signs in both housing and charging infrastructure. And the long-time drivers, electrification, energy efficiency and infrastructure, remain strong and our focus. GARO is ready to accelerate as condition shifts, and we have the ability to adapt quickly, act with discipline and always move with purpose. Thank you. And next slide, please. Questions.

[Operator Instructions] Our first question comes from Sofia Sorling from DNB Carnegie.

Can you hear me?

Yes.

Great. Okay. So I have a couple of questions, and I will start with 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, if I start there?

For sure, the main focus points 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.

Right. And you mentioned -- could we expect, for example, new product launches ahead? Or will you expand on already developed products, if I understood correctly.

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 this 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 it's -- electrical safety is the driver for GARO and we will continue to work on that.

Okay. But also, if I continue with E-mobility segment, 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 into other markets.

Okay. And if we go to Electrification, it seems like it's quite -- still a quite 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?