Hello all, and a warm welcome to the Garo Interim Report for January to June 2022. My name is Lydia, and I'll be your operator today. If you'd like to ask a question after the prepared remarks, please press star followed by the number one on your telephone keypad. It's my pleasure to now hand you over to Patrik Andersson, CEO. Please go ahead when you're ready.
Thank you, and welcome everyone to the presentation of Garo's report for the second quarter, 2022. My name is Patrik Andersson, and I'm the CEO of Garo. With me today, I have Helena Claesson, our CFO, to present the financial performance. Next slide, please. We will start with an introduction. Garo is a company that develops and manufactures and sell innovative product system for electrical installation under our own brand on the European market. Developing product that are in the forefront has always been a significant aspect of our success. Focus is on developing user-friendly and safe product with a modern design and long service life. The market for electrical installation material and charging infrastructure is continuing to grow, and we foresee a positive long-term trend for Garo.
At the same time, there is increasing demand for products and solutions to achieve a fossil-free society in which a growing number of players become aware of their environmental impact. This makes the sustainability aspect a crucial factor in the choice of product and service. Next slide, please. We divide our business into two business areas, Garo E-mobility, which consists of our product area E-mobility, and Garo Electrification, which cover our product areas electrical distribution products, projects, and temporary power. We have operations in Sweden, Norway, Ireland, Finland, Poland, and in the U.K., and we also sell in other European countries where we do not have own subsidiaries. Today, we have production on four sites, two in Gnosjö in Sweden, where we also have our head office, one in Värnamo in Sweden, and the fourth site in Szczecin in Poland. We are investing in capacity for the future.
In Poland, we are building a new production and logistics facility of approximately 15,000 square meter, which is a considerable increase in capacity, primarily in the Garo E-mobility business, but also in the Garo Electrification. The facility is expected to be completed by summer 2023. Garo will also expand operations in Sweden by relocating a significant part of the operations in the Garo Electrification to new facilities in Hillerstorp, 10 kilometers from Gnosjö. The new facility in Hillerstorp is a lease contract starting end of 2022, and the existing lease in Värnamo has been terminated and a smaller property in Gnosjö will be divested. We are approximately 500 employees in the group. Next slide, please. Our product area, E-mobility, where we develop and market all types of chargers for rechargeable vehicles.
We have product and turnkey solutions for different environments such as home, public, workplace, and along the highway. On top of this, we make the E-mobility business even more complete where we also offer service agreement to help the customer with yearly service, updates, et cetera. We believe it's important to make it easy for the user and make it possible to charge where the people live and work. This area accounted for 30% of the total sales. Next slide, please. In the business area, Garo Electrification, the largest product area is electrical distribution products, consisting of approximately 3,500 products and turnkey solutions for the electrical installation market.
Examples of products are components, safety switches, meter cabinets, outlet boxes, plugs and sockets, which are products used every day in different applications, such as in new buildings, renovation, marine and camping sites, industry, E-mobility solutions, etc., and contribute for 45% of the revenues. Our product area projects provide complete and customized solutions for all types of power supply for apartments, villas, industry. E-mobility solutions accounted for 21% of the total sales. The product area temporary power with a product portfolio consisting of temporary electricity, lighting, heating, and charging products used on construction sites and in events accounted for 4% of the total sales. These four product areas make Garo's offer unique and easy for the customer. An example of this is when a customer needs a charging solution with different chargers for an E-mobility.
They also need power supply for project and safety and installation product for an electrical distribution product. This make it easy, simple, and safe for the customer and end user. Next slide, please. We go further on with product development, and this has always been important for Garo and is the core of our operation and thus a key driver for organic growth. At times of component shortage, the advantage of being in charge of product development become evident. For example, we can redesign product depending on availability of various components. It's also an advantage to being able to create software integration and test environments for various backends and customers. One thing that make us different is our broad product portfolio and a strength within Electrification in general. We see clear synergy effects between two business areas, Electrification and E-mobility.
Our pace of product development continue to be high and we expect to launch interesting new products within E-mobility within soon. Next slide, please. Operational highlights. We start with Garo Electrification, where we had a strong sales development within the product area electrification with sales growth of 11% in the quarter. New construction, the renovation sector, and work to improve energy efficiency drove sales almost all product groups. We also had particularly good sales in recreational products used for marinas and camping sites. Garo E-mobility, we had a difficult quarter within E-mobility with 13% lower sales than a year ago. The main reason being the industry-wide shortage of components impacted the production rate in Garo E-mobility during the second quarter. As a consequence of long lead times and strong order intake, we have a very large order book by the end of the quarter.
We also introduced a new charger for heavy commercial vehicles during the quarter and sign a framework agreement with a vehicle producer, and we start deliveries at the end of the third quarter. We go further on with growth and profitability. As I mentioned, the strong growth within Electrification more than offset weak sales within E-mobility. This demonstrate the strength of Garo's business model with two business area completing each other and create growth in challenging times. Worth mentioning is the good sales growth we had outside the Nordics. It's pleasing to see that our development in the U.K. continues to be positive, and we will continue to invest in our U.K. operation both when it comes to facilities as well as in organization. Profitability in the quarter was lower due to lower volumes sold within E-mobility.
However, we have a long-term view on these two strong business areas, and we have a high order book, and we will continue to invest for long-term sales, marketing, and product development. Now over to Helena. Next slide, please.
Thank you, Patrik. I would like to continue with financial summary of the second quarter. Considering the challenges, overall, I think we have done a good quarter with net sales amounting to SEK 350 million, corresponding to a growth of 3%. Operating margins for the quarter came in at 11.3%, giving us an EBIT of almost SEK 40 million, which is below the SEK 55 million in profit for the same quarter last year. The reason for the lower results is less invoicing within Garo E-mobility and lower productivity. Also, approximately SEK 6 million of the reduction in profit is caused by currency differences in comparison with the same quarter in 2021. At the same time, as Patrik said, we continue our investments in markets and organization, mainly within the Garo E-mobility business area.
Net debt amounted to SEK 52 million compared to net debt of SEK 67 million in the same quarter last year. During this quarter, a dividend of SEK 70 million has been paid out to our shareholders. Next slide, please. Looking into the two new business areas separately, starting with Garo E-mobility. Net sales decreased by 13% and amounted to SEK 103 million compared to SEK 118 million in the same quarter last year. Challenges of sourcing material has negatively affected our production in the quarter and limited our possibilities for deliveries to customers. As of today, as Patrik just mentioned, we have a large order book within this business area. In Sweden, Garo has also had weaker sales to wholesalers, partly due to the long lead times for electric and hybrid cars. This is currently causing many end customers to postpone the purchase of a home charger.
EBIT amounted to SEK 3 million, and operating margins in the quarter came in at 2.9% compared to 17% in the same quarter last year. The lower sales volume in combination with lower productivity and the offensive investments led to the reduced profitability during this quarter. Next slide, please. Now let's look into business area Garo Electrification. Net sales increased by 11% and amounted to SEK 247 million compared to SEK 223 million in the same quarter last year. High demand was seen in all product areas, driven by the new constructions, renovations, and energy efficiency. Also noticeable this quarter was the good sales of recreational products used to control, measure, and supply marinas and campsites in a safer manner. The sales within the product area, electrical distribution products, varied depending on product group.
Sales of standard components such as safety products and products for energy measurements and power stations were particularly positive. Project sales was up with 29%. The trend of good demand in combination with the need of high delivery capacity for large and more complex customer projects is a development that benefits Garo. In Sweden and in Ireland, the growth is driven by new construction and renovation of properties. In the U.K., the buildup of the charging infrastructure is driving Garo's project sales. Sales within temporary power was about 30% lower compared to the same quarter, 2021. However, 2021 is a challenging year for comparison, when one single customer was investing heavily in this product area. EBIT amounted to SEK 37 million, and margins came in at 14.8%, slightly lower than the same quarter last year.
The lower operating margin is explained by changed geographical distribution and product mix, along with some currency differences. In line with price increases for source materials and components, Garo adjusts prices toward the customer to corresponding degree, albeit with a certain delay over time. Next slide, please. Cash flow from operating activities amounted to almost SEK 34 million in the second quarter compared to SEK 6 million in the same quarter last year. This is a result of better development of working capital offset by a lower operating profit. However, working capital tie-up remains high, mainly in component stock. This is a result of tactical material purchases, where Garo has secured material for the upcoming product launches. In the quarter, we have had investments of almost SEK 60 million, of which SEK 8 million were related to product development.
Also, as said earlier, during the quarter, a dividend of SEK 70 million was distributed to shareholders. We have a strong balance sheet with a net debt position per June amounting to SEK 52 million. We have an equity asset ratio of 61.2%, and available liquidity, including overdraft facilities of more than SEK 123 million. Now back to you, Patrik. Next slide, please.
Thank you, Helena. We go further on with strong growth and development opportunities. Here our strategy remains the same. The main driver of growth will be organic growth. A successful product development has been and will continue to be the key to this growth. On top of this, we're always looking for potential acquisitions, where we can add even new additional products, product areas or companies with an edge. We are also looking at new geographical markets with focus mainly of north part of Europe. Garo's vision is to become the leading brand on its chosen markets. Next slide, please. Garo's outlook on short term, the industry has had a difficult situation regarding supply of component and materials, as I mentioned before, but it looks better for the second half of the year.
We have a very high order book and with improved supply conditions, we expect to return to growth in the second half of the year compared to the same period last year. We will continue to invest in product development and intend to launch important new products, mainly within E-mobility soon. In the long term, we assess that the core market conditions have essentially not changed. To meet the market demand, we continue to invest in production capacity in both Sweden and Poland. We continue to invest within E-mobility to improve on our market presence and to strengthen the organization. This will, to a high degree, enable further expansion outside the Nordic countries. Thank you for listening, and we are now ready for questions. Next slide, please.
Thank you. If you'd like to ask a question, please press star followed by the number one on your telephone keypad now. To withdraw your question, it's star followed by two. Also, when preparing to speak, please ensure your device is unmuted locally. Our first question today comes from Olof Cederholm of ABG Sundal Collier. Your line is open.
Hi, good morning. It's Olof from ABG.
Morning.
A couple of questions, good morning, from my side. The component supply, at least that was slightly tougher than I had expected. Is it possible to talk about sequentially here? Will you be able to deliver more in Q3 than you delivered in Q2? Should we expect sort of a higher sales number in Q3 than in Q2?
Yeah, as we mentioned in the report, we see that the second half of this year will be improved, and we will come back to increased sales again. I can't go into exact details which month or quarter but we will come back to positive growth during the second half of the year. Because we see that the material supply will be better, and therefore we can invoice more products and produce more products. As we mentioned, we have a very high order book, so we have good intakes for new orders to deliver d uring the second half of this year.
Let me put it this way then. If you had full availability of products in Q3 already, you would have the production capacity then to see a sequential quarter-on-quarter growth? You have a huge order book, I guess.
Yeah. We can produce for a growth in quarter three if we had the availability, yes.
Yeah. Okay, great. Is it possible to in any way quantify the order book now? Is it half a quarter of sales or is it, you know, what time of, y ou say it's very big, but you know, it's usually probably very small because you're quick to deliver on orders.
Yeah. We are not quantifying the order book. It's the highest ever in our history, but we are not quantifying the order book. Sorry for that.
No worries. Can you talk a little bit about the demand side? Long term we know it's good. We've seen sort of penetration on EVs, increasing significantly across your markets. Are you noticing in any way, a cyclical factor here with people having less money in their wallets and, or have you seen sort of a slowdown in order intake here?
No, we can't say that. We can see a slower in the home market, so to say, and that is related due to the car deliveries is postponed due to shortage of components. When we look into project business for infrastructure, it's growing rapidly and we can't see any weaker demand for projects. What we can see it's a less in home market, so to say. That is during the time when the cars is delivered, the home market will start again on a high level. The project business is really high and the demand is high.
Very good. One last question from my side. The E-mobility profitability was a bit surprising on the downside, even with the low sales number. Is it possible to discuss a little bit how much of the shortfall that came from investments in growth and maybe in cost inflation and the less than optimal production setup? Just some color on that. I mean, I know you can't be explicit, but just to give us a sense.
Well, the majority of it is the weaker sales, the weaker invoicing in the quarter. We have taken the decisions to keep remaining staff within the production in order to be ready. Of course, that also then makes less margin due to some production inefficiency. That is the majority of the results. It comes to that.
Okay. Thank you.
Yes, we have SEK 3 million in currency effects if you compare with the same quarter last year. Then perhaps.
We continue to invest in the organization.
The investment in the organization.
Yeah. Yeah.
I think we, if you compare, it's what? 34 people compared to the same quarter last year.
Yeah. That makes sense. Maybe one last one here on raw material cost. At least headline numbers, when I look at sort of spot prices, most of the important raw materials are starting to come off a little bit. Have you seen a slowdown in the pace of cost inflation on the raw material side?
Yeah, we get the signals, yes. We can't see it on electronic components yet, but we can see it on other raw materials that the signal is, so that's correct.
Yeah. For your prices, component prices are still going up sequentially, so to speak?
Yes. Electronic components is still.
Yeah. Yeah.
Yeah.
Yep. Cool.
At the same time, though, we are so to speak, adjusting that towards the customer.
We're handling it to the market. Yeah.
Even if it could be.
Yes, of course. It will be nice if you handled it well to the market. It will be nice when they start to decline.
Yeah.
Of course.
Thank you very much. That's all from me. Thanks.
Thank you.
As a reminder, if you'd like to ask a question, it's star followed by the number one on your telephone keypad. Our next question today comes from Kenneth Toll of Carnegie. Your line is open.
Yeah, thank you. A few questions. One is on the long lead times you talk about. You have good order intake, but component shortages, so you can't deliver. Do you feel that you're losing business to other players due to long lead times?
We don't think it at this stage that we are losing so much business, but of course, we are probably lose some business, but not in a big stage. We are still taking a lot of orders, as you said, with good order intake, most in the Project business with the charging infrastructure. As I mentioned, it's a bit less orders in the home markets. At this stage, we don't think we are losing so much business. Of course, it can't continue for a long time, then you lose more business, of course.
You talk again about the framework agreement you have with the vehicle producer where deliveries could start at the end of the third quarter.
Yep.
This business, could you tell, maybe you don't want to tell which vehicle producer it is, but can you tell a little bit how it is structured? Will that vehicle OEM, will they sell Garo chargers, or will they be branded the same brand as the car producer, and will you supply all the dealerships and workshops with those chargers, and will it also be sales directly to customers? Can you talk a little bit more around that, please?
Yeah. This is an AC charger that we have developed with 43 kW. You know that most of the chargers is 22 kW that you charge your cars with. This is a 43 kW that we will sell to the vehicle producer, and they will sell it with the vehicle, so to say. It will be installed in different applications. We can, of course, also sell this to other applications. We will sell it under the Garo brand, but I think also it will be some brand from the vehicle producer. We think it's a very interesting area with this vehicle producer.
We can see more business coming during the coming years in this segment because this segment is growing quite rapidly. We think in a few years' time, this could be a very interesting product area in Garo.
Okay, great. Is it an exclusive deal that you are the only supplier to this vehicle OEM, or could there be others of your competitors supplying them as well?
At this stage, we are the only one but it's not exclusive.
Okay. Great. Then you launched this charger for heavy vehicles. Can you tell us a little bit more there? What are the customers? Yeah, tell us a little bit more on that product, please.
It's that product that we mentioned to this framework agreement for heavy vehicles.
Mm-hmm. Okay.
It's the same product there.
Then yeah, you have some rising prices for electronics and some negative FX effects. If I remember correctly, you can move prices to some customers July first. Were you able to move prices on July first to compensate f or both these issues? Mm-hmm.
Yes, we have done that.
Okay, great. Yeah. I think that's all from me. Thank you.
Thank you, Kenneth.
Thank you. As a final reminder, it's star followed by one to ask a question today. We have no further questions from the conference call, so I'll turn the call back over to Patrik Andersson.
Yeah. Thank you everyone for listening, and have a good day.
This concludes today's call. Thank you for joining. You may now disconnect your line.