Good morning, and welcome to the Q2 2022 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Jon Lind. Please go ahead.
Good morning, everybody. Jon Lind here, CEO of CTEK since 2013, and together with me today, I have Mathias Sandh, our Interim CFO. Good morning. I would like to go to slide three in our deck, please. A short summary a bit about what we are doing and CTEK today, we have two technical legs that we are standing on. We have the leg we call the EVSE, Electric Vehicle Supply Equipment, that is, chargers for electric cars and hybrid cars, or you can say vehicles, different type of vehicles. Cars is one segment. Within this leg, we have a number of different segments, but let me point out three different segments. We have the home chargers, destination chargers, and portable chargers.
I will focus within CTEK that is destination chargers and portable chargers at this moment. We have the destination chargers are the chargers that you find normally in public parking spaces, commercial buildings, et cetera, where you have a multiple number of charging points installed. The portable charger is a little bit of a niche where you have the possibility to carry with you a smart and powerful charger and hook it up to different type of mains power that is available where you park. The other technical leg is the low voltage side and we started that 25 years ago and have a strong footprint in the world today. That is also a number of different segments with under the low voltage side.
We're talking about 12-volt and 24-volt chargers for lead and lithium batteries. We have everything from the consumer side to professional use in the workshops. Last year, we also launched our new products within this segment called portable low voltage chargers, where you have a built-in battery. You can carry this one with you, and it serves as a power bank, but it's also our smart algorithm built into it. It can also start your car if you had a flat battery. It can also charge your tech, your computers, phones, et cetera, but it also has the solar panel capability. It's a new area for us, and as I said, we launched that during last year, and it's called CS FREE.
It's CTEK CS FREE. We also have the segment called integrated solution, where CTEK has the low voltage solutions on board. You find these kind of units in blue light vehicles, other type of service vans, et cetera, where you need charging, where you need to charge extra batteries that you have on board for different purposes. What I can tell you is that we are standing on two legs, the EVSE and the low voltage. If you look on page four, we will describe a little bit of the structure of the company. If we start in the middle then and look at the divisions and start from that. We have three divisions, and that is also how we report the company into the market.
It is important to carry with you how these are both structured and what kind of customers we are targeting because these different divisions, they are built on different customer bases. If we start with OE at the bottom there, OE is original equipment, and that division target customers within the OE business and the manufacturers of different type of mainly vehicles, but we also supply to other type of manufacturers. The main part that we serve today, that is the car manufacturers. We started with low voltage and continue to grow that segment towards that customer base. Now we also have started a journey with the EVSE products towards those customers.
The Aftermarket, AM division, that is the division that target mainly the end customers through different type of channels but also direct sales. You'll find here a number of different well-known chains in Europe and other parts of the world both retail chains and pure online players. We reach about 70 countries today through our distribution setup. Also here, we started with the low voltage, and we have the main footprint now continue to be the low voltage products. Now we also start to tap in with the EVSE products and especially NJORD GO that we have in the right side of the divisions here in this picture, which is the portable unit that is very suitable for that kind of distribution.
You don't need a fixed installation. Energy & Facilities, the division that targets and so because they supply more charging infrastructures and the type of customers you find in that division that is charge point operators, electrical wholesalers, installers, property owners, parking owners, and that type of customers that has a need or they install complete charging infrastructures for electric cars and hybrid cars. We have a split between EVSE and Low Voltage that you can see on the left of the divisions here in this picture, and this is numbers year to date 2022. The EVSE amounts up to 23% of the total sales, and Low Voltage stands 77%. We are a product development company and have a number of different patents.
We have a big part of our organization operations are related to R&D. Let's move on then to page five. Here you also see numbers year to date, 2022. If you look at the middle there, we continue to see that the Aftermarket as the main division with 65% of the total turnover. We have the quite fast-growing Energy & Facilities and OE. From a market or geographic footprint point of view, we summarize. You can say that about close to 50% comes from Central Europe. Of course we have a strong footprint in Sweden. We see North America as a growing market and an interesting market both from a low voltage standpoint and EVSE point of view.
Let's go then to slide six, and this is an interesting one I think. In Hagastaden in Stockholm, they have built Europe's biggest EV public garage space, working space, and it's 100% equipped with the CTEK Charge Cloud connected to EV chargers. We have also supplied our load balancing system called NANOGRID, and all these units are monitoring also through the CTEK Charge Portal. Totally it's more than 1,000 charging points installed now. This is, I think, really showing what kind of systems we can supply to the markets through our division Energy & Facilities. This is the segment we talk about destination charging. Let's go to slide eight, and I would like to give you some highlights on Q2.
In Q2, we have continued to see a strong market climate when it comes to divisions Energy and Facilities and other equipment or divisions. It's clear that we have seen a higher demand than the delivery capacity we have had during the quarter. It's a little bit different with Aftermarket during the quarter. Aftermarket, as you know now in my previous presentation here or earlier in this presentation, that we target the end customers here and consumers and it has been more volatile in the quarter. We refer to the geopolitical situation we see in the world that has created this dynamic in that market.
We've seen that some of the distributors have been different in different parts of the world, but they have been a little bit more careful when and how they place orders. That is what I would like to comment on that part. When it comes to the EVSE totally, worth mentioning is that it is 29% of the total sales came from that leg in the quarter, and that is the highest figure I've had ever in the company. We continue to see how we are building a strong sales pipe and strong customer relationships and that gives us the confidence and stability to continue to invest in the company.
We have taken active decisions to continue to invest in operations, particularly in the destination chargers, which is our primary market segment in the EVSE side. We can also be clear on that we continue to see challenges related to the supply chain. We continue to see high costs in the components and in the logistics. Worth also mentioning is that we have seen some positive signals during the quarter on that side. Too early to say that we can carry those positive signals with us into the coming quarters. We hope so of course.
I would like to mention that together with this part. We are also happy to say that we are now up in full production with our product NJORD GO. We have earlier also pointed out that we have been hit by the problems in the supply chain related to the NJORD GO production. We have overcome that now, so we are up in full production, and we have been able now to close the backlog, and we can now start to roll out in more countries with the NJORD GO.
Earlier, we also talked about the price increases and we have done the price increases according to the plan in May to offset the cost increases in various parts of the operations. With that said, I would like to hand over to Mathias for slide nine.
Thank you very much, Jon. During the second quarter, CTEK had an organic growth of 1%. Volume trend for original equipment as well as in the facilities division remained healthy. Aftermarket division noted, as you said, Jon, a more volatile demand due to current geopolitical situation and a lower share of online sales. Gross margin decreased with 2.9% to 52.1% due to continued supply chain disruption, higher logistics and component costs, and changed product mix compared with last year. Adjusted EBITDA margin amounted to 9.9% versus 17% last year. The development was mainly due to a lower gross margin and a continuing investment in the organization. Financial net amounted to -SEK 7.6 million versus -SEK 7.7 million last year. Earnings per share was SEK 2.24 for the period.
We turn to page ten and go to Aftermarket, where we could see the sales fell by 7% during the quarter to SEK 141 million. Organic growth was -12%. The Aftermarket division noted a more volatile demand due to current geopolitical situation and a lower share of online sales. Production of NJORD GO, a portable EV charger launched last year, was gradually ramped up during the quarter. Adjusted EBITDA declined to SEK 51 million versus SEK 65 million last year. This is corresponding to a margin of 35.9%, negatively impacted by lower volume and a higher component cost. We go to page eleven and the Original Equipment division, where we could see an increased sales by 28% to SEK 30 million versus SEK 23 million last year for the second quarter. Organic growth was 18%.
The performance was due to generally higher demand from a number of leading automotive manufacturers in different geographies after a weaker period due to the pandemic. Adjusted EBITDA amounted to SEK 3 million versus SEK 4 million last year, corresponding to a margin of 11%, partly due to continuing investment in marketing and sales resources. Net sales for the Energy & Facilities division increased 20% to SEK 54 million for the second quarter. Organic growth was 20%. The lower growth rate compared to last year was due to very strong comparative quarter. The demand for EV chargers remained very high in all CTEK's geographic markets. Adjusted EBITDA amounted to -SEK 4 million, corresponding to a margin of -6.7%.
Although the higher volume had a positive impact on earnings, it was offset by increased costs for activities in new markets and for our product launches. The operations continued to have relatively low share of fixed costs compared to current volumes. Page 13, cash flow and CapEx. Cash flow from operating activity amounted to SEK -8 million for the first six months. CapEx for the period amounted to SEK 66 million. Cash flow for the period was SEK -3.5 million. Cash and cash equivalents at the end of the period amounted to SEK 53 million. Net debt ratio for the period was 4.2. The increase is partly due to increased inventory levels and partly lower adjusted EBITDA for the second quarter. Over to you on page 15.
Yes. Thank you, Mathias. Let's give some flavor on the current trading here. We see a clear continuing strong EVSE demand in the world and in market. I think the agenda is clear from both the political side and the business world to reduce the negative effects on the climate. One part of this one building block is, of course, to go electric with the vehicles and charging infrastructure is key to make that happen. We feel confident. I mean, we have passed the tipping point and the demands are there in a number of different segments. That takes us also to that we are continuing to a number of different research projects because we will be in that part and be in the forefront going forward.
We continue to invest in product development, both in our own organization, but also through consultants and different type of partners to strengthen the long-term competitiveness. We see based on the momentum that we have been talking about that we are competitive with our product portfolio. As I said here, we continue to invest. It is a fast-moving industry. Coming back then to how we look at the challenging macro environment, it's clear that we still see these hiccups and problems when it comes to component availability and the logistics. We continue to be forced to swap the components and make large number of purchases outside the frameworks, the agreements.
We have also, as Mathias described, we have increased inventory levels and accepted higher logistics costs in order to be able to receive materials and deliver our products in time. As I said earlier, we have seen some positive development during the second quarter in this area, but it's too early to say that it will remain into the coming quarters. We've also earlier been talking about the GM collaboration where we are developing the Ultium chargers together with GM and for GM. We have now passed the different quality inspections and certifications and aligned the production now in the correct way. We will start the production there in August for the first type of charger, we call it the base unit.
We have a plan for an additional product model that can be earliest delivered in the end of this year. The start of the base variant will now start in August. Coming back to the investments, as you said, we continue to invest and taken active decisions on that, both in customer support and in connection with our marketing and sales activities in more and more export markets, especially to grow the EVSE segment. With that said, I would like to open up for a Q&A.
We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question is from Johan Eliason from Kepler Cheuvreux. Please go ahead.
Yeah. Hi, Jon. Hi, Mathias. I hope you can hear me well. I've had some problems with the sound from you.
Okay. Okay.
Yep. It's good. Okay, good.
Can you hear us loud and clear now?
Now I can hear you loud and clear. Absolutely. I was just wondering a little bit about these GM chargers. You said that you will now start to deliver them in August. I suppose the growth on the OEM business in Q2, was that just the traditional low voltage products, sort of coming back or were there any EVSE chargers in there?
Correct. You could say that it's the low voltage side that has created that growth.
Good. Then when you start deliver on these chargers, the Ultium chargers, do you expect cash flow to turn positive again as you work off the inventories I suppose you've built now? Or how do you see the cash flow projection in the second half of this year?
If I was you, I was going to ask that question as well, but we are not answering that question at this point and connected to special projects and so on. That is something that we have to come back to when we have sort of passed the different phases in the second half of this year. Sorry, but that is how we answer that question at this point.
Okay. I understood you've had some problems getting your product certified, like the NJORD GO in other countries, etc. Have you been able to get the certifications now so you can launch the product as you initially planned in a better way?
Yeah. I see it's so good that you answer, ask those type of questions so we can straighten out question marks. Maybe I have described a little bit wrong. What you were referring to earlier on the NJORD GO was that we had to change a number of components in the product. You go through new certifications and test the processes and so on. That gave this sort of stop in the production and we could not sell it for a while. What we do now is that we more or less relaunch it and make sure that we deliver to the ones that have been waiting for it. We started out last year with NJORD GO in the Nordics.
Now we can go with the existing product with existing certifications into other countries in Europe. There are, of course, other countries that require more and other type of certifications and adaptations of the product. We will make a European rollout here with the existing product. I hope that answered the question.
Yeah. Could you just sort of highlight what countries would it be? The U.K. or Germany or smaller like the Netherlands? Or what's the ambitions there?
I think we have to come back to that, and you will see that during our launch, announcements here going forward here in the second half of this year. I would like to wait until then. You'll see it.
Okay. If you go back to your low voltage products in the aftermarket. Aftermarket as a whole was down 12% organically. And I guess there were a little bit on the order volumes in the aftermarket as well as they were not in the OEM channel. How do you see this demand pattern panning out? Were there some delivery issues, or was it just demand issues? And how is sort of the retail buying pattern into the second half? Are they still reducing their own inventories, or how does it look like on the traditional aftermarket business?
Good question. I will try to answer it as clear as possible here. We are operating now in 70 countries, and there are different dynamics in the different markets. If you look at Central Europe and the Nordics, we have various situation in that area as well. If we at this point say that is one, and try to describe the big picture in it, was that when the war took off and we could see the inflation and so on coming into the picture, we could see a little bit more of a slowdown and a more careful way of handling this type of products. Parallel to that, we also had price increases that came in.
It's a mix then of these factors that took us to the 12% is a mix of this how to say, wait and see, we could say, phase from the distributors. Then also, we went in with a price increase, and it's a question of timing there, when that took place and how orders are coming in. All that happened in Q2. If you look at other parts of the world, it is very different. We have very good momentum in some areas and then a little bit slower in others. I think that is. I mean, if you look at the total picture in the world now, that is what we see.
Before it had sort of been, we had a more clear picture on the buying powers and the needs and so on. One thing is clear, I mean, we have seen in the past for 55 years that batteries need to be charged even though if it's a war or if it's inflation and so on, because the need is there for maintaining batteries. It's just a question how it turns out in different markets and when. To be very open and transparent here, there are different factors, and in this, and you were mentioning also one. We had NJORD GO of course in our plan and we could not deliver everything during Q2 for NJORD GO either.
There is a mix of those factors that take us to that growth or negative growth in the quarter.
I think you have also mentioned that North America is sort of your area you want to grow also the low voltage business, take market shares, and then become another top player also in the North American market. How are those plans developing?
I mean, with low voltage, we've been there for a number of years, and I think that's fine. Our customer base, the customer that cares and have high demands, we can see that on, of course, on the OE side in low voltage related to North America with the customer base we have there, and also on the consumer side. We have not yet, for example, launched our CS1 in North America. It will come now, which is a big, not a big, but it's important, I would say important step for us to go in with the latest technology and features into that market parallel to the existing product portfolio we have. We are on a journey there, targeting the high demand customers in different fields.
When it comes to the EVSE side.
Mm-hmm. Excellent. Just a final question on the pricing. Have you talked about these price hikes in May. Are those sort of enough now, so you're happy with the gross margins you achieve on both the low voltage or the EVSE side? Or do you foresee that you need to do more price hikes going forward?
This is clear. I mean, I think all of us in the world now that producing especially this type of electronics and so on, we are hoping to get a more sort of good picture of where we're going with the component costs and logistic costs and so on. As I said, we have positive signals during Q2. A little bit too early to say that we can carry that with us. Of course, that is one part of the equation if we need to increase more on the price side. It is a little bit for us to wait and see right now because as you said, we took the main part of the price increases took place in May.
We are now in August. Depending on how that part goes related and what are related the components and so on, because that is what it's more than right now, we will take a decision. We are a little bit in a wait-and-see phase right now.
On this price hike in May, was that visible in the gross margins you achieved in Q2 or will this mainly hit Q3 and forward?
You don't see that in Q2 too much because the dynamics, I think it's well known when you announce a price increase and you have a strong distribution network like we have. They normally stock up a little bit to avoid to take the hit on the price increases, and then you have the time before you have sell through and they order on the new price levels. That takes some months based on the structure we have mainly in on the low voltage and on these big distributors we have around the world.
Okay. Excellent. Many thanks.
Thank you. Thank you.
The next question is from Kenneth Toll Johansson from Carnegie. Please go ahead.
Yeah, thank you. Yeah. Let's start with the balance sheet. It's pretty weak at that EBITDA at 4.2. It's way above the financial target you have. Are you taking any actions to improve the ratio? Are you sort of stop hiring new people, cutting down investments or working on reducing inventories? Are there any covenants that you are getting close to, so you're running into problems on the financial side? Also, is the high gearing now, does that mean that you have to pay higher interest rates?
That is a question, and as Mathias said that if you first of all talk about what is driving it, is that we have increased the inventory, and as you have seen also and that you refer to that we have a lower result and that creates that gap. So far, of course you have actions in place in different areas, but as we also pointed out based on the pipeline we have, sales pipeline and how we're operating with the customers and so on, we see that we will continue with relevant investments that creates the momentum and so on according to our plan.
We have no reasons at this point to change our strategic midterm, long-term strategic plan and then the activities connected due to this. That is how we look at it for the moment. Of course, we have to be on it because it's one measurement for the company going forward midterm. Of course, I mean, there are initiatives related to bigger, how to say, collaborations and contracts that we have taken decisions about to go ahead with at this point that also of course affect this.
Okay. With this big GM contract that you're starting deliveries on now in August, at the same time there is a lack of components and logistic hurdles and so on. Do you think that now when you start producing products for GM, will that take out other products? Or do you think you will be able to sort of put the GM products on top of your plan for other products, if you see what I mean?
Yeah. As I said to you, and I mean, we don't how to say have specific projects and so on. If you take an overall description about and describe how we are running these kind of projects. I think it can be valid for you, and I believe I've been talking about it before. This is a collaboration with GM, and based on that, we have set up separate production lines. We work together towards the supplier base and so on, and material and all the components and so on, they are secured together with GM for their production separate from our existing ones. I think that answered the question. I hope so.
Mm-hmm.
Yeah. It's another type of animal, I would say, how we handle that compared to our existing products. There is not a mix between them or in the term. They are not in the same bracket.
Okay. Sounds good. When some companies are talking about this issue with component shortage and so on, some say that the shortage of components in themselves is getting better. The main problem now is more on the logistics side. Is that your experience as well, that it's more logistics than component shortage? Can you talk a bit about that, please?
A very mixed picture, I must say. We continue to face these declines from the supply chain sometimes that we didn't know about and suddenly it just happens. We have to, of course, take the decision if we would like to go to the spot buy market and buy it at higher cost or redesign. I mean, the same process all the time.
Mm-hmm.
The way we look at it and effects we have seen now is that depending on when you have placed orders on different components, we
Mm-hmm.
You get different type of effects. If you have been able to place orders during last year or first part of last year, they start to come in now as a normal delivery. That tells us another thing, because we have very long lead times on a number of different type of components. We are talking.
Mm-hmm.
Much, much longer lead times. In some cases, it's unbelievable how long it is.
Mm-hmm.
We can talk about 1-2 years from now to get components if you take a decision now. That of course creates a tough time for all of us that are in defining new products. I maybe have a little bit different view of this compared to what you described. We feel it's a component shortage, and that is based on both that they cannot supply now, they can supply later.
Mm-hmm.
We have these different routes to take if we redesign and then take another available product, available component, or we buy on the spot market. It continues to be a mix for us for different products, different components. That's an ongoing fight to handle.
It must make it very hard also. I mean, when you signed the GM contract, we had some discussions that you had similar discussions with other vehicle manufacturers. I mean, to do such a project when you don't know when you can get the components maybe two years out or so on, it must be very hard. I mean, not just for you, but for the potential competitors as well. Do you think that situation has sort of delayed some new business from coming in, similar to the GM business from other OEMs?
It could be. I mean, if you look at the OEM business overall, I mean, you've seen reports from stopping productions from a number of different vehicle manufacturers. Of course, we have a sort of a mirror reflex through the supply chain where we are one of the potential suppliers. What I'm coming back to is that when you do the design today to do the call for a new product development, you need to be quick to decide the components so you can set a delivery time on the project. Compared to in the past where maybe the product development is the most of the time, now it can be a component instead that take longer time than the product development itself.
As you know, when you work with OEMs, they have high demands on testing quality and so on. You cannot do that before you have the components. It's impossible. I think that described the challenges.
Mm.
We and others have right now.
Mm.
But, um-
Mm.
I think they manage it quite well, I must say, when I look at the outcome and how we operate the company.
Maybe going back to the balance sheet again, I guess that you are not breaking covenants because then you would tell us about it. Are you paying higher interest rates now that the gearing is higher for the company?
Well, a little effect from that.
Okay. Great. Okay, that's all from me. Thank you.
Again, if you have a question, please press star then one. There are no more questions at this time. I would like to turn the conference back over to the speakers for any closing remarks.
Okay. Thank you so much, everybody, for listening to us, and have a good day.
Thank you very much. Bye-bye.