Welcome to CTEK Q3 2023 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star five on their telephone keypad. 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 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 result of Q3, I want to just introduce CTEK and what we do. We have mainly two technologies within CTEK. It's our low voltage, our heritage, and we have EVSE, EV charging. We are currently in different customer segments.
Consumer, which is mainly 12 volts, 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 pre-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're reducing the number of EV chargers in the North American market. What is new for the quarter is 166 within our division, Energy and Facilities. That is according to the...
We bought a company, Chargestorm, 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 two divisions, OE and E&F, into one and rename it to 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 the in Q4 directly from Mexico to our North American customer when it comes to EV chargers. And we have also extended long-term partnership with global sports cars manufacturer, and we have launched the first customized version of our CS ONE. Over to you, Thom.
Yes, when 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 gone in the same pace as last year, 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, an improved mix, of course, but also coming from the activities we have done, both we have less of air freights, less of things like that, so we have stabilized our gross margins, have good gross margins in primarily the LV sector. Together with a 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 two. As Henrik also mentioned, bottom line is, of course, heavily impacted by the non-cash impairment during the quarter of around SEK 226 million.
Some comments then on the respective division. Aftermarket, as you can see, stems for two-thirds of the turnover in the quarter, so it's our largest division, have been stable, same volumes as last year, basically, and continues good and stable margins. We can also see from the graph on the left-hand side that it's a sequential growth from quarter two and upwards. Coming to OE division, that consists of, 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 and Facilities division, and, here we have 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, the margins and the EBITDA margins are also a challenge, 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 40 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 improvements as per plan on the cash flow side, and we foresee also positive operating cash flow for quarter four. So with that, I hand over to you again, Henrik.
Thank you, Tom. And, if we summarize then, and, these are the activities that we are previously communicated, and we are following our plan when it comes to reduction in workforce, including consultants. We have a goal to, by the end of the year, of 230, coming from 300 in the beginning of the year, and at the end of the Q3, we were at 230. OpEx, we have reached our target of the run rate of SEK 80 million, and development cost, we are well on the way towards the goal of SEK 80 million. We are currently standing a run rate of approximately SEK 95 million. And as Tom mentioned, 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 two divisions, OE and E&F, into one and renaming that to 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 destination charger or if it's a client brand charger. Our aftermarket division, we will keep as is, and we just rename it to consumer, which is more in line with the end segment where we're 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. 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 a substantial cost benefit for us. 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.
If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Pauli Lohi from Inderes. Please go ahead.
Hi, this is Pauli Lohi from Inderes. 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 market, and we see there quite dramatic decline in the quarter. 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 compliant for the bigger markets. We are there concentrating on the Pan-European parking operators, and we'll enter the European markets together with our customers.
Okay, thank you. Then, my next question is about car manufacturers. We have seen, for example, GM and Ford to postpone their investments on EV manufacturing this fall. Does that impact on your sales outlook for next year, 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 prognoses for next year.
Okay, thank you. That was all from me.
Thank you.
The next question comes from Johan Eliason from Kepler Cheuvreux. Please go ahead.
Hello, Henrik. Hi, Tom. Just starting with the good part, 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?
We, yeah, for the full year, accumulated, we are still behind last year in volumes. We had what we think is a quite big de-stocking 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 price increases we have done during end of 2022 and beginning 2023 as well. So, margin stable, volumes are 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, or?
Yeah. That's right. That's right. Yeah.... That's right.
Yep. 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? Yeah, I think it's as it is in this business, we are selling via stocks, so we need to have some stocks around the globe. But pretty healthy. We have some products, new launches that we need. We have maybe a bit high stocks, but we are working with them. So all in all, okay, on the LV side.
Yeah, 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?
Yeah, we start with the EV production in the Mexico plant, but of course, there is also possibility to move a low voltage products into that plant.
Because I guess you still have some tariffs.
Yes, that's correct.
From China on those products.
Yeah. Yeah, that's correct.
Yeah. Okay, good. Let's look at the EVSE side then. Obviously, a bit of a disappointing development, and then 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.
If you think about the gross margin, what could it do on the EVSE products? Would it be 100 basis points or 500 basis points, or what are we talking about?
We have-
For the U.S. supply?
We are not going into those kind of details per product group, but it is an essential cost benefit for us. The tariff you can read about, and then, of course, there are some increased costs, but the cross net for us is positive.
Okay, good. And then cash flow. I see here you're reiterating 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?
Yeah, we are continuously decreasing inventories during the year. We have also in quarter three, actually reduced our inventories. So, we can see now that during quarter three, we increased the sales versus quarter two, especially at the end of the quarter, and that will, of course, turn into cash during quarter four. So, we expect, as you said, to be cash positive also in quarter four.
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 strive for having a positive cash also after CapEx.
Good. And then, on the NJORD GO product, which I always thought was quite interesting. The volumes have not at all been particularly exciting. Are you 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 a 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.
Okay. Thank you very much.
Thank you.
Thank you, Johan.
As a reminder, if you wish to ask a question, please dial star five on your telephone keypad. 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. Yes, to reiterate, we are happy to see that 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. With the new organization, we also see that we are standing very good for the growth in the EVSE segment going further. Thank you very much!