Kempower Oyj (KEMPOWR) Earnings Call Transcript & Summary

Hi, everyone, and welcome to this webcast where we present Kempower's Financial Results for the Year 2024. My name is Paula Savonen. I am the VP of Communications at Kempower and also the host for today's webcast. Today, we have 3 presenters. We have our CEO, Tomi Ristimaki; our CMO, Jussi Vanhanen; and our CFO, Jukka Kainulainen. You can ask questions any time during the presentation by typing the questions on the Q&A box on your screen. I hope you enjoy the show. And now over to Tomi.

Thank you, Paula, and welcome from my side as well. Let's go directly to the point. So looking at the key takeaways of Q4. So definitely the best quarter of the year. So in a gloomy year, I think this would be a great ending to have it on the positive, and it's definitely something that we promised as well. So from that point of view, we kept the guidance given in the summer, the corrected value and brought the EBIT into positive, same effects to the cash flow as well. And second best order intake ever. So this is definitely a point that comparison figures that I'm really, let's say, happy on the efforts we have done and the success we have done on our sales front to achieve this figure. We are in good shape, organizational changes, process changes, reformed leadership and decreased cost base positions us well for the future growth. And I would say strategic progress, and we look at the projects which are really affecting our future. So fully transitioned to the next-generation charging platform. So for a new company like Kempower, this is a big change to move to a completely new platform and make this big change, we accomplished this during 2024. Successfully initiated pilot deliveries with megawatt charging systems and also emphasizing this that we are making actual deliveries with new technology being first on the market. And as North America, one of our really key projects, revenue grew by 84% year-over-year, gaining market share in the U.S. and Canadian markets. So key figures, EUR 72 million and order intake almost EUR 68 million and positive operative EBIT. And looking at the topic we have all looked at in many cases and has been more like a theme for the year. So customer excess inventory levels. And I'm emphasizing also what does it mean? It's not inventories at Kempower. It's not really sales inventories. We are talking about the goods which are already waiting for installation. So this is the biggest portion of the inventory levels we are always discussing is, goods waiting for installation, goods waiting for the customers to actually start profiting the customers. So this has been an industry-wide bottleneck hindering growth in 2024, especially to the value chain position of the manufacturers. The excess inventory levels have decreased at steady pace. So I think our forecast have been showing to the same direction. We are looking at all the time how this affects from our goods, and we are expecting the rest of the manufacturers' goods actually to move pretty much in the same pace because looking at the market growth, which was about 30%, and we look at how much our installation grew is about the same percentage. So this is looking at really the effect of the inventory on a year that our revenue decreased by 21%, there was 30% more Kempower chargers installed into the field. So this is actually showing it in real figures that the goods were coming from the inventories. And we expect that the excess inventories across the whole DC charging industry in Europe will impact the demand during the first half of 2025. Sales development. So we onboarded 22 new customers during the fourth quarter of the year. So looking at 66 significant customers, new ones in 2024. So this looks at a wider customer base. And we have definitely increased the focus on retail customers, looking at retail the companies who take the charging as their own business because these are newcomers to the market and are not affected by excess inventories of Kempower, either somebody else's goods. Significant growth this year or last year in commercial vehicle segment in both order intake and revenue. This is already a significant share of our total revenue. And also remember, when we're looking at the future figures, how we estimate that this will be actually the biggest market segment for DC charging by year 2030. And the success in new customer acquisition lays the foundation for future growth. Positive progress in North America, which is also looking at the picture is actually from Manhattan, our first site inside the New York City, kind of a landmark to be in sole central position and have a very busy site in there with our customer Revel. And it's for the North American team, highest order intake ever, and is already contributing 15% of the total order intake and the 84% revenue growth year-over-year is showing that we are growing our market share in the North American market. And also great to announce and already announced before that Monil Malhotra is joining -- has already joined the team actually and is now leading our expansion in North America. We are actively monitoring recent market developments in North America and remain confident in our strategic approach. And then I give the floor to Jussi to have the expert really telling on how the market is going in the near years.

All right. Let's look at a little bit the business forecast for the coming years. And now the numbers we talked, they are targeted for DC charging market. So not AC, it's just the DC, which is our business. Interesting numbers and polite warning that there's a lot of those now, but I leave them for you for further studies. But these EV registrations, it's one of the key indicators that we are following, and this is creating the megatrend for the DC charging. Last year, we saw quite good growth in most of the market areas, including U.S.A. and then now the United Kingdom is becoming one of the biggest markets in Europe. Germany was slightly down to the subsidy changes, but it's still one of the biggest markets for us in Europe also. The second very interesting pointing out to the -- what Tomi mentioned to you that commercial vehicle segment, it's becoming a significant market for us. You can see it also from our sales figures from the last year that it's gaining the foothold now. On the left-hand side, there's truck registrations. The quantities are still on a lower level, but you see the growth rates are quite nice. On the right-hand side, top 10 countries for the e-bus registration and the buses are becoming a mainstream market for us already. And everywhere, the electrification is starting from the city buses. Still, the growth rates are double-digit and in some countries, even the triple-digit. So very significant market segment, altogether the commercial vehicles. But the car registrations, truck registrations and e-buses, they are creating the demand for the DC charging. Then Jukka was insisting me to bring this number for you. This is the cumulative market number if we look at how many EVs there is in Europe compared to the whole car pool. And BEVs are only 2.5% in the European car market. This means that there is a room for significant growth in the coming years, and our business is very in the beginning, even that we are doing a quite nice business already. The same figure for the U.S. that 1.6% of the cars on the cumulative numbers are the EVs in the U.S. numbers. The U.S. transformation for electric movement is a little bit behind, but we can see from the registrations that it's catching up very, very quickly. In the U.S., naturally, the biggest market is California. And then the important and probably for you also, the most exciting numbers are what is our addressable market in Europe and North America for the DC charging? This, we have been communicating you frequently on these webcasts. We made an extensive market study, and we want to keep the market estimate of EUR 14 billion for 2030. This, we verified with a couple of third-party consulting companies, and we are happy to see that they agree on our own forecast. All in all, this means in the coming years, average 30% yearly growth rate. And the last year, the early numbers that we have analyzed the market was EUR 2.7 billion. And this is now Europe and North America numbers only that are our main markets. In these areas, Tomi was mentioning already that Kempower stayed with roughly the same market share numbers from the installations. So extremely good result for the turbulent year. Then summarizing for you a couple of key indicators and key drivers for the coming growth. Still, if we look at the different cumulative numbers of cars and the DC charging points, there is almost every country in our market, the investment debt that the ratio of the DC charging per cars, it's not ideal. And we can see a huge investment still needed in all main markets, even in Norway, U.K., Germany with a big number of charging points. And number 2 is the CO2 emission reduction targets coming from the sustainable targets for us. And this means that roughly around 20% of the cars sold must be electric in the future and to meet the emission targets. The number 3 is, we see it already now happening that the car OEMs are bringing more and more affordable EV models, cheaper cars, meaning that the EV is getting into the mainstream. And number 4, which is very significant for us and becoming our stronghold is the commercial vehicle market, where the key driver is the total cost of ownership. Many of our customers are indicating us that the TCO is beneficial for electric fleets already compared to traditional combustion engines. That was summarizing the growth market drivers, and back to Tomi.

Thank you, Jussi. And now looking at the very near future. So we are looking at the market outlook for 2025. So as commented in the beginning, we see that the first half of 2025 is still affected with the same market conditions that were affecting the 2024. So looking at the excess customer inventories and basically due to that slow sales. We expect the inventory to decline at the same rate as Q4 2024. And this actually indicates exactly that we are about in this year's summer actually in a more normal situation when you look at the inventory situation. Second half of 2025, we expect markets starting to recover during the second half. And this third-party market study that we did in the beginning of the year to verify this is also showing the signs and showing the numbers behind it and backed up this expectation. And on our technology. So looking at the next-generation charger platform and transitioning to this fully is completed as planned. It was big work, but a great accomplishment when actually achieving this completely. We have successfully launched the MCS program and really delivered first pilots of Mega Satellites to our customers. A nice also information on key drivers from the market that ZapMap survey in the U.K. recognized Kempower's charging systems as outstanding reliability and efficiency. And by an EV charging platform provider, they made actually, let's say, public social media post on this, and they are showing the figures. So we were showing the lowest error rates of any manufacturers in their, let's say, charging fleet. Customer segments pointing out how we divide the market and also a little bit of situation. Private cars, of course, is something that is in the growth mode, but it's more stable. But like Jussi pointed out, the amount of car adoption in Europe is only 2.5% when you look at the complete fleets, 1.6% in the U.S. So we cannot talk about mature market, but let's say, more mature compared to the -- when we go to the right-hand side. So what is now really starting to pick up with growth figures and already making a significant, let's say, part of our revenue is commercial vehicles and especially the trucks because there is so much more trucks in the world compared, for example, buses. Then on the future markets, off-highway vehicles is something that will be actually giving us also a path to the growth markets in the future as well. Interesting point, I will tell more about it. It's, I would say, mining and ports is already moving. But we do see the manufacturers preparing for this. You have first machine models in construction vehicles or machines, and we have seen some material handling things moving also outside of the hub area. But definitely, we have kind of different stages market. We have, let's say, available market that is in growth stage for long years to come. And some great references and very good news from the market. Renault Mobilize, this is a significant cooperation that we started. So 16 ultrafast EV charging, I would say, hubs, not just stations. So this is not 16 chargers. This is 16 full-site hubs in France already in use and around 40 are currently under construction, awaiting the connection to the grid. So definitely honored to be together with Renault Mobilize. Mobilize is a new, let's say, business unit of Renault, focusing on charging, let's say, car sharing, different kind of services around the vehicles. And then something about the port segment, cooperation with DP World and Kalmar in London. And this is definitely a great way to start with the public reference of this visible in this market. I could say there is more to come from the port segment during this year as well. But definitely something in the machinery segment and I would say, off-highway commercial vehicle, especially that this is a market that actually moves now already. And then nice visible also reference on Finland, where we have a major beverage manufacturer, Hartwall, doing their sustainable deliveries based on our charging platform as a backup. Sustainability highlights. So upgrading our EcoVadis rating to silver level, which means we are either equal or better than 90% of the all companies rated. So this is great place to be there. And, of course, our ambition is to be even higher, so we continue our efforts. Company car fleet, 100% electric, very important in us, and we are making the statement ourselves, 175 EVs and approximately 3.5 million kilometers driven with our company-owned vehicles. Not only personal cars, it's also own transportation equipment we use between the factories and internal movements, there's trucks and vans as well. Big figure, 100% growth in energy going through Kempower charging. So there is indicators of the growth, and we are also seeing that our products are used more and more in the market. So if we look at 30% growth in installation, but 100% growth in energy going through the charging. So this is showing many trends in here. But in sustainability statement, this is the biggest impact Kempower is making to the market. Of course, we are very concerned of what's our carbon emissions, but this is actually the impact for the company because every watt used in electricity is away from carbon-based fossil fuels. Close to 100% renewable electricity utilized in offices around the world. ISO certifications, quality, environmental sustainability, safety and as a new one, cybersecurity. Of course, this is a sustainability topic. But when we are looking at our competitive situation, we are one of the few companies in charging industry, which can state that we have ISO 27001 certified products that we have actually certified to cybersecurity. And this is a big topic actually when we are especially competing against Asian competitors in the future. Nasdaq Green Equity designation renewed. So this is nice to show really the highlights in the sustainability. And as said already before that for Kempower, this is actually core of the business. And these things, what we are stating is really when we are in this business and making an impact is one of our core values. So this is a topic that is business relevant to the company. And then I will give the floor to Jukka to go through the numbers.

Thank you, Tomi. Let's start first from the key figures. So we definitely had a strong year-end, like you see from the numbers and what partly was already highlighted by Tomi. So whatever metrics you are looking at, we had a definitely positive result. And what was driving the positive results, there is a few factors. Of course, having the highest quarterly revenue in quarter 4 comparing to previous quarters was one factor and also the availability of our new charging platform as well. And then we were able to reduce our fixed cost base, which brought the positive result overall impacting positively on overall company. In connection to that, also, of course, we are happy with generating the positive operating cash flow for the quarter 4, and that was, of course, relating on the profitability improvement, but also we were able to optimize our net working capital positively. As an example, we reduced our inventory levels by EUR 6 million during the quarter. But overall, really positive quarter when looking our results. Then continuing in the order intake development in the quarter 4 maybe the best number to highlight from the quarter, EUR 67.8 million, which was improvement year-on-year when comparing quarter 4 2023. And also, like Tomi mentioned, it was the second highest order intake in Kempower history. Of course, whole year, like we have communicated earlier, the order intake went down, was impacted by the high inventory levels on our customer side and overall weak market environment. But the quarter 4, strong year-end when looking the orders. Then continuing on the revenue, our quarterly revenue, it went down by 13%, but was actually highest for whole year 2024 when looking the quarter 4. So generated EUR 71.7 million during the quarter. Then, of course, one highlight during the quarter was North America. So our revenue grew by 37%. And whole year, the revenue in North America grew by 84%. In quarter 4, revenue in the other regions, Rest of Europe and Nordics decreased and the Rest of World remained on the same level than last year's quarter 4. Then about the profitability development and cash flow development, positive results in these areas as well. Of course, profitability was driven by high revenue, like I mentioned earlier and also connected to the reduction in the fixed cost we were able to achieve for the quarter 4. And that is fully, of course, linking to the operating cash flow development over there. And like I mentioned, the improvement in the net working capital as well. So we generated this EUR 12.4 million positive operating cash flow for the quarter. Also, of course, I want to highlight our target of EUR 10 million annual cost savings comparing the quarter 2 2024 cost level. We were also able to reach that. And like I mentioned, that had a positive impact on our profitability in quarter 4 and, of course, going further. One another thing also to highlight our overall liquidity in the company, which includes the cash reserves, money market investment and overall available credit facilities that was kept on the same level than end of last year. So it was EUR 114.4 million at the end of the year 2024. So good development on that area as well. Then regarding our headcount development, at the end of quarter 2, we had 907 people employed, at the end of quarter 4, we had 786 people employed. So we had 121 people less employed, which was part of those factors enabled us to reach this EUR 10 million annual savings. Other factors was to our ability to reduce external spending on company and group level overall. So good development on that area as well. Then our outlook for 2025. We, of course, aim to return back on the growth track. 2024, exceptional year in difficult market environment, which still continues in the beginning of the year. But overall whole year, we target to get back on growth track. We continue investing selectively on our growth initiatives, including our key countries in Europe, North America and, of course, our technology as well. And for '25, we guide the revenue to grow between 10% up to 30%. And for profitability, we guide operative EBIT, we expect that to improve significantly from the year 2024. Regarding financial targets, unchanged on the year 2028, we target EUR 750 million annual revenue. And in the same time frame between years '26, '28, we target the operative EBIT margin between 10% up to 15% and then in the long term, minimum 15% operative EBIT margin. Thank you.

Thank you, Jukka. Thank you, Tomi and Jussi. And now we go to the questions that we have received a lot. Thanks for those, and you can still keep them coming. The first question is about the order intake. Your order intake in the fourth quarter showed improvement and was EUR 68 million. Should we read from the 2025 sales guidance that similar level of order intake may not be achievable in every quarter in 2025? Were there something special larger orders or seasonality in the fourth quarter, which is not expected to continue? So how would you describe this?

I would say on the seasonality that there's no clear seasonalities. Some way, of course, we have a bigger portion again in the Nordics, which is affected that there was a slow installation always in Q1 at the end of Q4. But I think that impact is not that significant and in the beginning of Kempower history where the portion of the Nordics was even higher. But I would say that people cannot expect actually in this kind of industry, the order intake to remain stable. This is actually about installation rates. It's a customer project. We have fairly large deliveries still. I think when the kind of situation changed from '23 that we had this -- people were fearing the component shortage, so maybe their orders were larger. But compared to the size of the business, they are still large. So single orders can shift actually -- so the, let's say, 1 quarter is a very short-term looking. So maybe half a year or the full year is a better view.

Thanks, Tomi. Then the next question is about the market development. You are expecting improvement in the market in the second half of the year. Is this based only on expected normalization of client inventories? Or do you expect also the end demand to pick up on the second half?

I can comment at least something because it's -- we look at it with the third-party making the market study. They look at other parameters as well. So it's not only the inventory. It was based on also the, let's say, the forecast for the EV numbers to actually start growing. It's a significant number of sales figures now going up in January, but that's -- we cannot rely on that figure. That's a huge percentage in growth in battery electric vehicle sales now. But that is expected to grow. It means that the demand will grow and there is the investment debt in there. And, of course, on the investments, it also affects the interest rates and the financing and many other things. But definitely because the growth was already there in installations. It grew by almost 30% or around 30% in Europe. So the growth in installation was there, but it was not coming from a new product from the manufacturers, which can seen from our figures as well. So the basic market is there, and it's actually based on the market study, it's even expected to actually accelerate the growth. So this is where we actually base the whole thing and verified that with the market study.

Maybe I could comment there that the forecast for the next year '26 is quite good also that we expect that 30% growth year-on-year. And then the market demand is so big already in a ratio of the inventories customers are having, so it will roll out faster.

Thanks, Tomi and Jussi. The next one goes to you, Jukka, from Tom Skogman. You have not booked any restructuring changes. However, I know the number of employees have decreased a lot. So how have you booked these costs?

We actually booked in quarter 3 restructuring costs around EUR 1.2 million. So that was included in the quarter 3 numbers, and that has been reported out also.

Thanks, Jukka. Another question about the excess inventory, but this is regarding the whole market actually. Are you aware of any excess inventory affecting your closest competitors? Can you comment anything about that?

This is a whole industry affecting and this is also hard to see because most of our competitors are not public companies. So they are not reporting at the same level. But this is also -- was part of this third-party study to also investigate what is the situation and, let's say, interview customers and try to get the information from the market, and it is actually affecting everybody in the market.

Thanks, Tomi and Jukka. Then we go to North America. How do you see the North American market for your products in 2025?

I think the market has been welcoming to our technology. So it's been that customers are excited about that. And I don't know how to say about here. I think it's a little bit uncertain how the subsidy schemes and cancellation or not cancellation will affect the speed of the market growth. But it is something that I think we see there is demand for our products. Remembering that Canada is not affected with the discussions happening on the U.S. side. So there is a significant share of our sales today is already from the Canadian side of the book.

Thanks, Tomi. Can you describe or mention anything about the sales guidance regarding North America? How big share of the growth does North America cover in Kempower's sales guidance? And Nikko Ruokangas is the one who asks, you don't need to tell exact numbers, but could you please highlight how important North America is in different guidance scenarios?

I can comment on that. Of course, it's like we already communicated out in the Capital Markets Day 2023. So it's our key market becoming the really, really critical market in the mid and long term. So from that, you can conclude that, of course, we expect higher growth rate there than on the group level overall. But for year '25, we didn't guide specifically for North Americas. It was a guidance for our group revenue.

Thanks, Jukka. And then there is a question about the NEVI funding, very topical. NEVI funding has been paused for the time being and also other incentives for EVs are in danger in the U.S. How have you taken that into consideration in your guidance? What about in your estimate of the 30% installations increase until 2030?

I would say, first, looking at the North America situation, I think we were a little bit cautious when calculating the total number and what we affect from the -- what we expect the effect from the U.S. But in the long term, and it's not very clear if something is on hold or canceled. We are delivering our first NEVI-funded project as well at the moment. So it's an unclear situation. And then how -- what is canceled, what is not, remains to be seen, and we are following the situation very clearly that what happens in the U.S. because I would say that it affects the speed of growth. I do see the growth coming from other topics as well, but it is the speed of growth that could be affected.

Further comment there that the funding and subsidies, it's not the only driver, but pointing out my growth drivers that the total cost of ownership is one of those things that the companies want to invest on the EVs.

So it's not only based on subsidies?

Correct that repeating the story a little bit.

I think it's resonating really well in the commercial vehicle segment in the U.S., and I would say there might be even higher interest in the commercial vehicle segment when you just compare the level of conversations because that's a kind of money-driven market in total cost of ownership and the logistics companies are really looking at their operating costs, not just the purchase price of the vehicle, they are really looking at the investment cost over the years of use.

The next question is about MCS. What impact do you expect Alpitronic's MCS to have on market?

I think this is a new market, and I expect every charger manufacturer who is playing in the commercial vehicle segment to actually introduce MCS. So this is a new standard that is coming for the new trucks. It's great to be the first making deliveries, but there is no market if there is only 1 manufacturer. So this is definitely a situation where I think we will see more launches on that.

Competition good.

Competition is always good, and it's also showing that there is a market. So in a way, MCS is not something unique to Kempower. It is actually a demand from the truck market, and it could be also affecting aviation, marine, all the high-power charging in the future. So this is an important standard when we look at actually the future markets. And even if you look at our commercial vehicles, even the off-highway markets for us, this is a key product for the future. Taking a certain share for the very fast high-power charging there.

Then there is one question about the new members of the global leadership team. When might we see and ask question from Monil Malhotra, who was just appointed to lead the North American operations and Mathias Wiklund, who is our new Chief Sales Officer? And I can answer to that question. We hope to see them soon here in the studio. Isn't it so?

Yes.

Yes. Definitely. The next question is about the public charging networks. How big a part of your sales comes from public charging networks? Many of them are still cash flow negative and can't raise capital as easily in the current environment. So how big an impact would this make in 2025 on Kempower's sales?

It's, of course, the relevant significant part of our revenue. But I want to correct that they cannot raise capital. We have seen actually many funding rounds also '24. That's true that it hasn't been necessarily equity-driven. There has been quite a lot of debt and private credits used in the CPO field, for example, in 2024. So it's not correct that they are not able to raise. They are raising capital all the time actually. And when look in '24, there was also a positive improvement in CPO field, what we monitor how the funding is developing over the years.

And it's one of the leading indicators when we look at the market growth, actually, the CPO funding is something we have been monitoring as well. And this is actually -- it's going up, not down. And in a way, even we don't report the segments separately, but we would say that '24 was that the proportion of commercial vehicle segment grew us more when basically the inventory situation was affecting the private car and public charging business.

Well, let's stay in the public charging business then about Mobilize. It's actually Renault Mobilize. How many chargers do you plan to provide to Mobilize in 2025? Do you have any information on that?

I think we cannot say that. We have to ask maybe Renault that this is a kind of single customer situation that we will communicate everything that we can when it's possible. But now we know we already delivered 16 sites, which are operational and 40 are actually in installation in France.

Yes. Can you mention anything about the market situation or development in France in general?

Yes, France was one of the leading markets and key focus in Kempower also one of those top countries in Europe, Germany, U.K., France, but definitely interesting market.

And throughout the year, the battery electric vehicle sales figures have been double-digit in France. So in that way, it's also the demand is getting up.

Good. We have time for a couple of questions, and then we need to close the lines. A year ago, the first quarter in 2024 was very weak. With half of the first quarter 2025 already behind us, do you expect a similar fall this quarter? Will a lower year-on-year base help to see a big growth this quarter? Can you comment anything?

Well, we gave a separate also guidance for quarter 1. So, of course, you can see from that, that it's a slow start for the year. So that is what I can comment.

Thanks, Jukka. And then the last question, how big share of your new customers are customers that are expected to order regularly, notable orders?

This is actually one of the topics why they are new customers. There is a lot more if we would include the number of single buy customers, the number would be a lot higher. So it is actually that we report the customers that we expect actually to make significant orders in a continuous pace.

Thank you. Thank you, Tomi. Thank you, Jukka, Jussi. A big thanks to the audience for all the questions and discussion and for following us. But before we close the line, we want to showcase actually the public charging network development in France, where our customer, Zunder is building a public charging DC charging network, focusing especially on locations across the highways in France. I hope to see you soon. Thanks for joining and check out the video before you close the lines. Bye.

Bye-bye.