Hello everyone, and welcome to the GARO interim report for January to September 2022. My name is Seb and I will be the operator for your call today. If you wish to ask a question on today's call, you can do so by pressing star one on your telephone keypad, or press star two to withdraw your question. I will now hand the floor to Patrik Andersson, CEO, to begin the call. Please go ahead.
Thank you and welcome everyone to the presentation of GARO's report for the third 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 start with an introduction. GARO is a company that develops and manufacture and sell innovative products and system for electrical installation under own brand on the European markets. Developing products that are at the forefront has always been a significant aspect of our success. Focus is on developing user-friendly and safe products with a modern design and a long service life. The market for electrical installation material and charging infrastructure is continuing to grow, and we foresee a positive long trend for GARO.
At the same time, there are increasing demand for products and solutions to achieve a fossil-free society in which growing number of players become aware of the environmental impact. This makes the sustainability aspect a crucial factor in the choice of product and service. Next slide, please. GARO's footprint. We have two business area, GARO E-mobility, which consists of product area E-mobility, and GARO Electrification, which include product areas, electrical distribution products, projects, temporary power. We have operations in Sweden, Norway, Ireland, Finland, Poland, and in the U.K., and we also sell to other European countries where we not have own subsidiaries. We have production facilities on four sites, two in Gnosjö in Sweden, where we also have our head office, one in Värnamo in Sweden, and one in Szczecin in Poland. As we have announced before, that we are investing in capacity and production efficiency for the future.
In Poland, we are building a new production and logistic facility of approximately 15,000 sq m , 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 of GARO Electrification to a new facility 10 km from Gnosjö. The new facility is a leasing contract starting at the end of the year, and the existing lease in Värnamo has been terminated and a smaller industry property in Gnosjö will be divested. We are approximately 520 employees in the group. Next slide, please. In product area E-mobility, we develop and market all types of chargers for rechargeable vehicles.
We have product and turnkey solutions for destination chargers for all various places, at home, at public places, working places, and along the highway. To make the E-mobility business even more complete, we also offer service agreement to help our 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 1/3 of the sales year-to-date. Next slide, please. In the business area Electrification, the largest product area is electrical distribution products, consisting of approximately 3,500 products and turnkey solutions for the electrical installation markets.
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 building, renovation, marinas, camping sites, industry, and E-mobility solution, and contribute to 42% of the group sales year-to-date. Our product area project provides complete and customized solutions for all type of power supply for apartment, villa, industry. E-mobility solutions accounted for 20% of the total sales. 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 5% of the sales. These four product areas make GARO's offer unique and easy for the customer.
An example of this is when the customer need a charging solution with different chargers from E-mobility, that they also need power supply from the project and safety and installation products from electrical distribution products. This make it easy, simple, and safe for the customer and end user. Next slide, please. Product development has been important for GARO and is the core of our operation and thus a key driver for organic growth. At the same time, of component shortage, the advantage of being in charge of the product development become evident. For example, we can redesign product depending on the availability of various components. It is also an advantage of being able to create software integration and test environment to various backends and customers. One fact to make us different is the broad product portfolio and strength within Electrification in general.
We see clear synergy effects between these two business area, Electrification and E-mobility. Our pace of product development continue to be high, and we expect launching interesting new product within E-mobility, which I will talk about in the next slide. Next slide, please. New generation chargers. I am proud to say that we will launch a new product program and platform for destination charging with smart services by the end of November. The product range are built on a whole new platform and comprises services for use at home, in houses, apartments, commercial facilities, as well as in public places. Our ambition is always to offer our customer the most safe product and solution within electric vehicle charging. The new product range and service will make a big difference for the installers and users in several ways.
New technology is being introduced and in the development of the product, high focus have been on safety standards and future service to make it easy for all stakeholders. This will be GARO's most important product launch ever, and we will present the product program and platform at London EV, the 29th of November and December 2nd in eCarExpo in Gothenburg. Next slide, please. Operational highlights. We start with Electrification. I'm pleased to say that our development within business area Electrification has been strong this year and sales growth of 11% in the quarter and 13% in the nine-month period year-to-date. With this growth rate, we have a clearly outgrowing the underlying markets.
New construction, the renovation sector, and work to improve energy efficiency drove sales of almost all product group, and we saw a healthy increase in sales within product areas, electrical distribution product, as well in project business. We also saw good development on our market outside the Nordics with a sale increase of 12% in the quarter and more than 30% in the nine-month period year-to-date. We go further on with GARO E-mobility. Sales of E-mobility product were in line with last year, which is an improvement compared to the last year but still well below our ambitions. Demand in the is there and our order intake remains strong. However, our production and capacity to deliver is negatively affected by lack of electrical components, and this is an industry-wide shortage.
As a consequence of long lead times and strong order intake, we have a very large order book by the end of the quarter. Similar to quarter earlier quarter this year, we saw a weaker development of home charger due to long lead times for hybrid and electric cars. We expect that this part of the market to recover in line with car manufacturers lead time reducing. On the other hand, we see a strong demand in advanced system for public charging, where the expansion of infrastructure for public charging is continuing. We introduce a new charger for heavy vehicle during the second quarter and sign a frame agreement with a vehicle producer, and we start delivery during the third quarter as planned, and we have also seen an interest from several other customers. Growth and profitability.
As mentioned, the strong growth within Electrification more than offset weak sales within E-mobility. This demonstrates the strength in 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 U.K. continues to be positive, and we will continue to invest in our U.K. operation, both when it come to facilities and well in organization. Profitability in the quarter was lower due to volumes sold within E-mobility. However, we had a long-term view on these two strong business area and have a large order book. We will continue to invest for long-term in sales, marketing, and product developments. Now over to Helena for financial performance. Next slide, please.
Thank you, Patrik. I would like to start by looking at the financial summary of the third quarter. Considering the challenges of sourcing materials, overall, I think we have done a decent quarter with net sales amounting to SEK 317 million, corresponding to a growth of 8%, where a weaker sales within GARO E-mobility has been compensated by good growth within GARO Electrification. Operating margins for the quarter came in at 11.8%, giving us an EBIT of SEK 37 million, which is below the SEK 48 million in the profit for the same quarter last year. The reason for the lower result is less invoicing within GARO E-mobility. At the same time, we have continued our investments in markets and organization, mainly within the business area, GARO E-mobility.
Operating profit for the period January to September came in at SEK 143 million compared to SEK 150 million for the same period last year. When doing a comparison between the years, one has to consider the negative currency effects of almost SEK 12 million in this year compared to a positive currency effect of SEK 4 million last year, giving a difference between the years of SEK 15 million. Net debt amounted to SEK 45 million compared to a net debt of SEK 28 million in the same quarter last year. Investments in the new facility in Poland is for the period January to September, amounting to approximately SEK 18 million, where we, on a rolling basis, take up a credit facility in corresponding degree. Next slide, please. Now let's look into the two new business areas separately, and we start with GARO E-mobility.
Net sales amounted to SEK 92 million, which was more or less in line with the same quarter last year. Also in this quarter, the challenges of sourcing material, mainly electrical components, have continued to negatively affect our production and limited our possibilities for deliveries to customers. As of today, and as Patrik just mentioned, we have a large order book within this business area. In Sweden, we have seen a weaker sales to wholesalers, partly due to the long lead times for electric and hybrid cars. This is causing many end customers to postpone the purchases of home chargers. EBIT amounted to SEK 0.4 million, and operating margins in the quarter came in at 0.4% compared to 22% in the same quarter last year. Mainly, again, it is the lower sales volume that is behind the weaker results.
Also lower productivity and continued investments in sales and operations has led to the reduced profitability in the quarter. In other words, GARO is building an organization for growth within GARO E-mobility. Next slide, please. Now looking into GARO Electrification. Net sales increased by 11%, and sales amounted to SEK 225 million compared to SEK 203 million in the same quarter last year. High demand was seen in electrical distribution products and in projects, both driven by new constructions, renovation, and energy efficiency. Sales of 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. These products are used in new production as well as in the renovation and energy efficiency of properties.
Noticeably this quarter was the continued sales of recreational products for controlling, measuring, and power supplying marinas and campsites. For this kind of products, the season is now coming to an end and is replaced by the sales of car heaters during the winter season. Project sales continue to grow. In Sweden and in Ireland, sales was driven by new construction, renovation, and energy efficiency of properties, as well as the buildup of the charging infrastructure. In the U.K., you can say that the growth is more or less entirely driven by the buildup of the charging infrastructure. The trend of strong demand in combination with the need of a high delivery capacity for large and complex customer projects is something that benefits GARO. Sales within temporary power was somewhat lower compared to the same quarter in 2021.
However, 2021 is a difficult year for comparison as one single customer was then investing heavily. Next slide, please. Now looking into cash flow and balance sheets. The cash flow from operating activities amounted to SEK 32 million in the quarter compared to SEK 52 million in the same quarter last year. This is a result of lower operating profits as well as higher need of working capital. Working capital requirements remain high, mainly in inventory of components. This is a result of tactical material purchases where GARO has secured material for upcoming product launches, such as the one Patrik just mentioned. The high inventory value is also an effect of component shortages, where a large portion of components for pending orders remain in stock, waiting for a few missing parts to finalize production and make deliveries to customer.
In the quarter, we have had investments of SEK 21 million, of which SEK 7 million were related to product development. We have a strong balance sheet with a net debt position per September amounting to SEK 45 million. We have an equity asset ratio of 61.4% and available liquidity, including overdraft facilities of more than SEK 142 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 a key to this growth. On top of this, we are always looking for potential acquisitions where we can add either new additional product areas or companies with an edge. We're also looking at new geographical markets with a focus mainly of the north part of Europe. GARO's vision is to become the leading brand on its chosen markets. Next slide, please. GARO's outlook. We start to look into the outlook on short term. The GARO Group's net sales for the fourth quarter will be in line or just below the year earlier period.
Overall, GARO E-mobility have challenging competitive figures compared to the fourth quarter 2021, but the main issue is lack of critical electrical components. As I mentioned earlier, we have a large order book, but the hampered delivery capacity within E-mobility is compensated by growth within GARO Electrification. In the long term, housing production remains at a high level, although production of new houses are expected to slow down during the second half of 2023, in, for example, Sweden and other markets, but on the other hand, increase in building activities in Ireland. Demand for commercial and public real estate is expected to remain good. Also, renovation activities, investment into energy efficiency and Electrification in general are expected to remain at the high levels. To meet market demand, we continue to invest in production efficiency and capacity in both Sweden, as we relocate Electrification from three to one facility.
In Poland, we are investing in a new production and logistics facility, which will be finalized summer 2023. We continue to invest within E-mobility for improving our market presence and to strengthen the organization. This we will, to a high degree, do to enable future expansion outside the Nordic countries. To repeat also, I'm very pleased that our significant product development efforts will lead to the launch of our new generation products within E-mobility at the end of this month. With these product and services launches, we will further strengthen our position within E-mobility. Next slide, please. Thank you for listening, everyone, and we are ready for questions.
Thank you. If you'd like to ask a question, please press star one on your telephone keypad now. If you change your mind and wish to withdraw your question, please press star two. Our first question today is from Henrik Forsström from ABG. Please go ahead.
Hello, Patrik and Helena. My first question is about the component shortage. Could you tell me how much was sales held back in Q3 due to the component shortage?
I can't quantify that exactly, but of course, it held our sales back. We would had a nice growth if we have had the right components, but I can't quantify that in numbers. I'm sorry for that.
All right. Could you tell me how are you looking at the component shortage going into 2023?
As we mentioned in the report here, we can see that we will have some lack of components, of course, during the last quarter here in quarter four in 2022. We will also see that, of course. We will have some lack of components also in the beginning, but then also we will start to ramp up our new platform, as we mentioned. Of course, in the beginning, it will be some lack of components also. We're also solving many things. Today, we have lack of components, electronic components. We have solved a lot of other components, so to say, in Electrification. It is still some components in the E-mobility business. We will see it during quarter four and maybe in the beginning of next year also.
My final question is it possible to discuss the order backlog in E-mobility? How much larger than normal is the backlog, and is there a potential for growth both in H1 2023 as the backlog is converted to sales?
Yeah. The order book is much higher due to normal order books, so to say. But we don't quantify the order book, but this is much higher. Of course, if we can get the components we are missing, it could be some boosted quarter, of course, but I can't say at this time when this will happen. We have, as you mentioned, a large order book, much higher than in normal times.
All right. Thank you. That was all for me.
Thank you.
Our next question is from Kenneth Toll from Carnegie. Please go ahead.
Yeah, it's Kenneth here. It's probably me. I have some questions about the new chargers, if you can tell us more there a little bit. What's the main things there? Will they be easier to produce, to assemble? When you introduce them, will that help your component shortage situation? Will they be easier to install for the electricians? Will they have more functionality?
We can say, of course, it will be in many several ways. If you start with the production, of course, with this platform will be much easier for us to assemble. Also, as you mentioned, for the installer, it will be really nice to install this product and easy and quick and safe, but also for the owner or the user. All stakeholders will see a totally new platform and another use of this product. A lot of improvements. As we mentioned, this is not just a charger, this is a new platform, as you mentioned, with a lot of functionalities, but also a future platform that we can add on new functionality that doesn't exist today, so to say.
We have a future-safe platform that we can add on a lot of functionality coming, the coming years. That is extremely important for the customer and end user to feel that. We have also put in a lot of effort in safety, because I have mentioned it before. Now you should charge your car at your home or apartment. It's really important that this is in a safe way. Here, GARO has a lot of experience, and we have put in a lot of effort in this to have the most safe charger in the market.
When do you expect to start deliveries? You said that you are expanding the Polish plant and will manufacture a lot of those there. Is it more mid next year, or is it second quarter or something?
We will start to deliver in small quantities in end of quarter one, and then we will ramp up from there.
In the beginning, will you produce the new chargers in parallel with the existing chargers, or will you sort of, yeah, make a clear cut between them?
No, we will not make a clear cut. We will have a phase in and a phase-out plan, which means that they will have an overlap over time, these two chargers.
Great. The new chargers, they are prepared for vehicle-to-grid solutions.
The functionality and all functions, we will tell you at the launch in 29th of November. The more detailed information will come there. I'm waiting for that moment. Sorry for that, Kenneth.
Yeah. Yeah, no problem. You have to save something.
Yeah.
Also, now that you have started to deliver chargers to this heavy vehicle manufacturer, can you tell us a bit more? Is it chargers that this vehicle manufacturer would use themselves in their own operations, or will they also sell those chargers to buyers of the product? Or can you tell us a bit more about the potential there, please?
The potential there is that the producer here will, when you buy this truck, you will have the charger delivered with the truck, so to say.
Okay.
They will install the chargers at the customers' parking slots, so to say. Of course, will also be installed at the production sites, but mostly at the truck's customers, so to say. It will come along with the delivery of the truck.
Great. Then also, if I remember correctly, for many of the contracts you have, you change prices in the middle of the year and in the beginning of the year with the big distributors you had. Sorry, in the middle of 2022, you increased prices quite a bit since there were component prices going up and so on. Prices from January 1st now, do you see a similar high price increase from January 1st?
No. We, of course, see some price increases, but that in a lower stage, so to say, because we can see on several materials it is stabilized. It will increase some in electronic components still, but many of raw materials is stabilizing. So we will not see so high increases in prices in the markets.
Okay, great. Yeah. That's all for me. Thank you.
Thank you, Kenneth.
As a reminder, for any further questions, please press star one on your telephone keypad now. We have no other questions on the call, so I will hand the floor back to Patrik.
Thank you, everyone, for listening in, and have a great day. Bye.