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

Hello, and welcome, everyone, to GARO's Q3 Presentation. I am Jonas Klaren, CEO. And as always, we appreciate you taking the time to join. Our focus this quarter has been turning structure into rhythm and rhythm into results. With me is our CFO, Helena Claesson, who will take you through the financials shortly. But first, let me share the key developments from the last month. Next slide, please. Let's look at the third quarter and how GARO is progressing. The overall picture is one of steady improvement. We are building momentum across the group and beginning to see structure turning into rhythm. Electrification continues to be our financial backbone, performing steadily across markets. We see positive momentum within installation products and stronger project pipeline, particularly in the U.K. and Ireland. The Swedish residential market is still slow, but we are starting to see signs of increased activity. Our focus is on sharpening sales integration and preparing for the next market upturn. E-mobility remains challenging as the home charging segment has become a clear low-price market. We are staying disciplined, simplifying the portfolio, reducing inventory and focusing on professional and public charging where our strengths lie. Technically, the Entity platform is stable and the LS4 platform continues to gain traction on export markets. Step-by-step, we're gaining control and positioning the business for recovery. On the leadership side, collaborations between sales, production and product development is much stronger, and the organization is starting to find its rhythm. We have one unified Swedish sales team and better alignment across the group. Operational control and liquidity have improved, creating a stronger base for what's ahead. We are now refining and executing the group road map to ensure every part of GARO contributes to a more resilient company as we move into 2026. In summary, Q3 shows that our plan is working. The fundamentals are improving, and we are continuing to build GARO step-by-step for the long term. Over to you, Helena. Next slide, please.

Thank you, Jonas. And as usual, I would like to start by looking at the financial summary for the third quarter. Net sales amounted to SEK 251 million, a decrease of 7% compared with the same quarter last year. GARO Electrification showed a stable quarter with sales almost in line with last year. It is very pleasing to notice that our product group, Electrical Distribution products showed growth of 4% compared to the year earlier quarter. Also, our Project business seems to be recovering after the summer. E-mobility continued to develop weakly with a 22% decrease in sales in the quarter. Gross margins has been on similar levels to previous quarters, where stronger margins within GARO Electrification have been offset by lower gross margins within GARO E-mobility. The adjusted EBIT for the quarter amounted to SEK 2.5 million compared to SEK 0.4 million in the same quarter last year. EBIT for the third quarter amounted to negative SEK 1.6 million, where the result was charged with SEK 4 million in termination costs for the departing personnel. We have a significant imbalance between the 2 business areas, GARO Electrification and GARO E-mobility, where the latter weighs on the group's overall results. Next slide, please. And now moving over and looking at the 2 business areas separately, starting with GARO Electrification. Net sales amounted to SEK 197 million in the quarter, SEK 3 million less compared with the same quarter last year. Sweden experienced a decline of 13%. On the other hand, our sales to the Nordic countries grew with 5% and the sales to Europe, excluding the Nordic countries, showed growth of 18% in the quarter. Looking into the different product groups, sales within Electrical distribution products increased by 4% compared to the same quarter last year, while sales in product areas, Project and Temporary Power both decreased by 12%. However, sales within Project was sequentially higher in September and current order intake indicates that also October will be a good month for Project business. This indicates that GARO's seasonality also applies for this year where the fourth quarter normally is GARO's strongest quarter. Adjusted operating profit amounted to SEK 22 million compared with SEK 20 million in the same quarter last year. The result in the quarter is explained by growth with strengthened gross margins in both Ireland and in the U.K., which has then partly been offset by the costs of ongoing ERP projects. Our work with the implementation of a new ERP system has reached an intensive phase involving a high rate of investments, but the project is crucial for our long-term efficiency. Adjusted operating margin came in at 11% compared to 10.3% last year. EBIT for the third quarter amounted to SEK 21 million, where the result was charged with SEK 1 million in termination costs for the departing personnel. Next slide, please. And now we move and focus on the GARO E-mobility business area. Net sales amounted to SEK 54 million for the quarter, giving us a negative growth of 22% or SEK 50 million compared with the same quarter last year. In the quarter, collaborations with Eon and Hyundai has resulted in GARO delivering a large number of LS4s to the Hyundai European factory in the Czech Republic. Furthermore, the dialogues have also created business with Sze in Slovakia for the Kia factory, where GARO will deliver semipublic charging. The adjusted operating profit for the quarter amounted to negative SEK 19 million and is fully explained by the low sales and a product mix. EBIT for the third quarter amounted to negative SEK 22 million, where the result was charged with SEK 3 million in termination costs for departing personnel. Next slide, please. And now looking into our cash flow and our balance sheet. Cash flow from operating activities before change in working capital amounted to SEK 5 million. Cash flow from operating activities after changes in working capital amounted to SEK 11 million. Tied up capital from inventories decreased net with SEK 18 million in the quarter. 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 43 million. Our net debt deposits amounted to SEK 270 million compared with SEK 319 million in the year earlier quarter. We had an equity asset ratio of 51.5% and available liquidity, including overdraft facilities of SEK 50 million. In July, as a result of improved cash flow over time, GARO's available overdraft facilities were reduced and EUR 2.5 million repaid. And now back to you, Jonas. Next slide, please.

Thank you, Helena. Let's move to Sweden because as we say, when Sweden works, GARO works. The Swedish organization is now in place and starting to perform as one team. Daniel Emilsson is firmly established as Country Director, leading a unified sales organization across both Electrification and E-mobility, together with Daniel Bentzer, our Sales Director. This structure is giving us clarity, speed and accountability. Decisions are being made closer to the market and collaborations is improving week by week. With Roger Törnberg from Sonepar now joining as Business Development Director, we are increasing our ties with installers and wholesalers, restoring market confidence and reconnecting GARO with its roots. In short, the commercial engine is starting to turn again, stronger, more focused and much closer to our customers. Next slide, please. Over the past months, we have focused on creating a clear and predictable framework for how GARO operates. We now have an integrated structure that connects strategy, operations and leadership, turning our plans into consistent execution across all markets. Our work is centered around 4 priorities that define how we move forward. Organization and execution, we have established clear roles, country accountability and a consistent leadership rhythm across the group. Product and technology, we are simplifying the portfolio, securing compliance and strengthening competitiveness in each product line. Operations and capital, we are improving efficiency, releasing cash and optimizing factory utilization step by step. Market and customer, we're rebuilding relationships, improving service quality and restoring brand credibility in every market. Together, these 4 priorities form the foundation for GARO's next phase one of stability, profitability and sustainable growth. Next slide, please. Looking ahead, this road map shows how we connect today's recovery with GARO's long-term mission. Each phase is designed to strengthen our ability to deliver reliable, innovative and sustainable electrification solutions across Europe. In 2025, our focus has been to stabilize and simplify to secure profitability, reduce complexity and fully align our leadership. In 2026, we moved to build the baseline, completing our digitalization programs, improving capital efficiency and preparing for controlled growth. In 2027, we will accelerate and scale, expanding our product reach, [ leveraging ] out manufacturing capacity and governance installer trust in all markets. And from 2028 to '30, we aim to lead and evolve, positioning GARO as a sustainable leader in electrification and expanding in energy solutions. Step by step, this is how we move forward towards our mission to power the energy transition to a more sustainable world. Next slide, please. As we close the third quarter, we continue to see steady progress in how the organization works together. Leadership and collaborations are strengthening across key functions, and the company is finding its operational rhythm. Electrification remains stable with solid margins and our international markets, particularly Ireland and the U.K. and Finland continue to perform well, even as the Swedish residential market remains weak. E-mobility is still under pressure, but we are now stabilizing the business through focus and cost control. Cash generation and liquidity have clearly improved, giving us room to move with control into the next phase. Looking ahead, our focus is clear: execute the group road map under one leadership rhythm, continue to drive efficiency and rebuild trust and stay ready to accelerate when the market turns. In short, GARO is becoming a more structured, predictable and resilient company step by step. Thank you for listening, and we are now ready for questions.

[Operator Instructions] Our first question today will be from the line of Sofia Sörling with DNB Carnegie.

A couple of questions from my side. I will start with E-mobility. So you mentioned a tough market in home charging segment and a more focus on public chargers ahead. How would you assess this market segment in terms of your own position, your product offering and also the competitive landscape? That's my first question. And maybe I can add also that what countries are you focusing on?

Just let me to be clear, we remain committed to home charging, but we are not competing in the low-price consumer race. We are focused on winning on the professional home charging where quality and safety matters most, and also developing our web tool and our app to be ready to relaunch them at the end of the year again to make it easier and simpler for installers to use our products. We have the same focus on all our markets, I would say.

Okay. So it's not that you are now preparing for new focus and new investments in public, it will then be rather close to what you have done more recently as well.

No, I wouldn't say that. We are still remain committed to the market. But what we have been working on now, firstly, to make the platform stable and as it has been now for the last year, hardware. Now we're improving the software, so it becomes easier for our installers to use it.

Okay. And when do you expect this software then to be more updated? Will it be beginning of 2026 or already end by 2025?

We are beta testing now. So we will release it as soon as possible, hopefully, by the end of the year.