Earnings Call: Q4 2020

Feb 12, 2021

Hi, everyone, and welcome to the presentation of Gauru's 4th Quarter and Full Year 2020. My name is Patrick Anderson, and I'm the CEO of Gauru. With me today, I have Helena Klarson, our CFO, to present the financial performance. Next slide, please. I will start with a short introduction of the company. Goro was founded in 1939, which means that we have been over 80 years in business. We develop and produce innovative products and turnkey solutions for the electrical installation markets. We divide our business into 2 business areas: Sweden, which consists of our Swedish operation and other markets, which cover our business in Norway, Ireland, Finland, Poland and in the UK. We have production on 4 sites, 2 in Gneukho in Sweden, where we also have our head office, one in VANAMO in Sweden and the 4th site in Stetschim in Poland, and we are approximately about 400 employees in the group. Next slide, please. Product areas. Our business consists of 4 product areas. And on this slide, you can see the different product areas share of the total sales in 2020 compared to the same period last year. Our largest product area, electrical distribution products, which contributes to almost half of our revenues, where we saw a slight decrease during the year, mainly in other markets. Sales within e mobility accounted for 28% of the total sales, up from 23% In the year earlier, our product area project had a stable sales in the period, accounting for 20% of the total sales. And temporary power decreased and now constitutes 6% of the business, down 1 percentage point compared to last year. Next slide, please. Operational highlights. Our product area, e mobility, continues to drive sales with a growth of 39% in the 4th quarter and 24% for the full year. Growth was mainly driven by Sweden, while other markets also saw an improvement in the last quarter in relation to the full year. The construction related products area combined had sales in the 4th quarter, which was in line with last year, while 2020 was down 3%. We saw a positive development in Sweden in the last quarter and continued recovery in the other markets. Although some markets were subdued during the year with benefits by the high rate of renovation and refurbishment with a high demand for products to improve energy efficiency. As we mentioned before, we incorporated the business area eMobility as of 1st January this year in order to sharpen the focus, strengthen the organization and to intensify the development activities. Next slide, please. Financial highlights. Group sales increased by 10% in the 4th quarter with a strong growth in both our business area Sweden and other markets. For the full year, we had a growth of 3% in Sweden, while other markets were in line with last year. Gauru could record its best Every quarter in terms of profitability with an operating margin of 16.2% in the 4th quarter, up from 12.9% in the same period last year. Scale effects from increasing volumes, a positive product mix and a good control of cost are the main explanation to these positive developments. We also had a strong cash flow from operating activities amounting to SEK 82,600,000. Our balance sheet is strong with a net debt of SEK 11,300,000, down from SEK 45,600,000 last year. The Board of Directors will propose to the AGM to distribute a dividend of SEK 4.75 per share. This is 50% of EPS and in line with our dividend policy. Next slide, please. Sustainability is embedded in our product development. Some key focus Areas in 2020 within this area were following. Energy efficiency is essential for meeting the future's climate goals. We have invested significantly in developing smart energy efficient products and services for companies and private individuals. Through our digital control and energy efficiency solutions, we can lower the energy consumption. Gauru strives to be the leading edge when it comes to digital solutions. For example, we have introduced digital solutions such as QR codes on our products to make product manuals and instruction videos available digitally. This way we can minimize printed material. Furthermore, our end customers can use some of the products with our various app solutions, providing an energy efficient usage of our products, while also providing increased flexibility for our end users. We have also started on life cycle analyze of our e mobility products during the year and analyze that is ongoing and where we are expecting to reach results during Q2. Choice of material is in an area that Goro focus on when we are developing new products. Choice of materials that are sustainable in all aspects and can cope with the climate where the products are installed and the existing installation conditions. An example of this during the year is our new cable cabinet that we have been made in the sustainable material Magne Lease. Now over to you, Helena. Next slide, please. Thank you, Patrick. Let us start by looking at some financial highlights. As Patrick already mentioned, Goro had a seasonally strong 4th quarter, and this is actually our strongest quarter ever, both in terms of sales and operating profit. Net sales increased by 10% to CHF 306,000,000 during the Q4, where the Lion part came from organic growth driven by eMobility, but also 1% points was added from the acquisition of EV Charge Partners down in June. Operating margins in the quarter came in at 16.2%, given an EBIT of almost EUR 50,000,000. The main reason for our stronger EBIT was positive scale effects from higher volumes, favorable product mix, mostly within eMobility and the tight cost controls in general. Net income for the quarter amounted to €34,400,000 and for the full year to €95,300,000 which is an increase of 11% compared with the full year of 2019. Overall, In spite of the ongoing pandemic, we have managed to keep us a good business during the full year of 2020. Next slide, please. Now looking into net sales by product area. Our largest product area, electrical distribution products, increased by 4% in the quarter, where the growth could be seen both in Sweden and in other markets. The project business was down in Sweden, but showed significant growth of 34% in other markets, where we have had some interesting customer projects in Norway and Ireland. The demand of e mobility continues to be very strong in Sweden and improving in other markets, and we have seen a good demand across the whole product range. Temporary powers continue to have lower sales in Sweden and in line with last year in other markets, even if it is from lower volume. Next slide, please. Now looking into the two business areas separately, starting with Goro Sweden. Net sales amounted to almost CHF 209,000,000 in the quarter, which is an increase of 11% Compared to the same quarter last year, the growth came to the larger extent for e mobility, which was up with 55%. It is also with JAW you may notice that an increased demand for our standard components driven by the sales in e mobility products. This is a good example of synergy effects between our product groups. Sales of Electrical Distribution Products was up by 5% in the quarter compared to the same period last year. The market as such was judged to be unchanged during the Q4 compared with the previous years, which indicates that Gauru has gained market shares in this area. EBIT increased to €38,000,000 and margins improved to 18.4%. This is explained by higher sales volumes, favorable product mix and good cost control. Next slide, please. Looking into Business Area Other Markets. Sales increased by 9% in the quarter, And we saw a continuation of the recovery of sales that started in the Q3 as the markets opened up again after the restrictive measures launched earlier in 2020 to counter the spread of COVID-nineteen. Sales within electrical distribution products and projects combined were higher in the 4th quarter with strong development in the products area project, an increase of 34% driven by high demand of customized solutions in Norway and Ireland. EBIT margins decreased as a result of our continued investments in Business Initiatives, which has not yet reached full impact following the closure of markets due to the pandemic. This regards mainly the U. K. Market. Next slide, please. Cash flow from operating activities amounted to CHF 82,600,000 compared to CHF 68,900,000 in the same quarter last year. This is a result of a stronger EBITDA and lower working capital requirements. In the quarter, we have had investments of CHF 9,500,000 whereof about CHF 8,000,000 were related to investments within product development. We have, as Patrick said, a strong balance sheet with the net debt per December amounting to CHF 11,300,000. We have an equity asset ratio of 57.9 percent and available liquidity including overdraft facilities of almost SEK 167,000,000. Now back to you, Patrick. Next slide, please. Thank you, Helena. The effect of the COVID-nineteen pandemic. We have had limited impact on sales in Goro Sweden from the pandemic, While other markets continue its positive trend from the Q3, but increased restriction primarily in UK and in Ireland, had impacted demand negatively. Goro has not applied For or received any financial support from the Swedish agency for economic or regional growth as a result of COVID-nineteen. Next slide, please. Strong growth and development opportunities. Here, our strategy remains the same. The main driver of the growth will be organic growth. A successful product development has been and will continue to be the key of this growth. On top of this, we are always looking for potential acquisitions where we can add either new or additional products product areas for companies with an edge. An example of this is the acquisition of EV Charge partner, which we announced May 15 last year to strengthen our offer in the e mobility business. We are also looking at new geographical markets, which are focused mainly of northern parts of Europe. Next slide, please. Outlook. The market conditions are stable in Sweden and in other markets. On long term, beyond the COVID-nineteen virus, our assessment of the core market conditions has not changed. However, great uncertainty prevails due to the COVID-nineteen long term consequences on the economy. The market for e mobility is growing structurally, and we see a continuing strong trend with further expansion of the charging infrastructure in all markets. Thank you, everyone, for listening to the presentation of the Q4 and full year 2020. Now me and Helena are ready for questions. Our first question comes from Swilja Astomir of ADG. Swilja, please go ahead. Yes. Hello, Ferdas Mejes from ABPU. I wonder if you could please elaborate on and describe further the Coming incorporation of the Inobiliq business area? The incorporation, yes. The reason for that is, of course, to make this as our own company to strengthen the focus on this area, to strengthen the organization and to increase the activities, as you said, for development of products. So that's the key focus because we have done this before with the project business as we made our own company in 2004 and also for the temporary power in 2,007 to make full focus on the organization. So that's the main reason for that. Okay. Thank you. And during 2020, you operated quite tight control. Should we see this as something temporary? Or do you expect it to continue into 2021? You think about the margin? No, the cost control. Yes, of course, we are looking on the cost control every year and to increase in a good level and have the cost control during that increase. So of course, we will always look How to spend our money? And of course, we see some changes here because if you can see during the year, we haven't had any exhibitions, for example, but we have invested in digital solutions instead. So of course, during 2021, we will invest in different things, so to say, but we will, during the year, also have good cost control, and we have always had in the company. So we will continue with that. Okay. Thank you. And last question. I wonder if you can say something about the size or the revenue within your sub segments. And then I mean the home chargers, the SIMFS chargers, SIMFS chargers? I don't have the direct numbers But we can say so much that we have, of course, a good increase in the wall box segment, But I don't have the clear numbers of that. But wall boxes is increasing a lot for the villas and that type of installations. Our next question comes from Kenneth Towle of Carnegie. Kenneth, please go ahead. Yes. Thank you. So I was wondering, you have a very strong balance sheet, and you put up a slide where you And sort of describe your strategy for growing going forward. But do you see any major Expansion projects in terms of expanding plants or opening new sales office or something that could requires some capital? Or are you hunting more aggressively for acquisitions? Of course, we are looking at interesting acquisition, and we have done that since we come to the stock markets in 2016, And we have a team working with that. And of course, as we said, we are interested in new markets. We are interested in technology company. And so we are open for acquisitions, so to speak. Okay. And then when we compare your sales trend In e mobility with some other competitors, some others are growing quicker than you do. They are also smaller in size. Do you think by creating this eMobility as a separate company that you will be able to grow that business faster? Yes, that's one of the reasons why we are doing this company because we are organized the company in the way So we'll continue to grow in this fast expanding market. And of course, we also have to see in which Areas we and our competitors work because we have decided to be a player all over the mobility market, which means that we have the wall boxes for private individuals. We have the public charges And we also have the DC charges. We have a broad range, and some competitors have a range for private individuals. And but we have chosen another way, and we keep on with our game plan and with this company with full focus. So we think we're growing in a good way. Yes. So what you're saying is basically that all the segments of e mobility is not growing Yes, as fast right now. You can say like this. Because of the pandemic, some of the DC projects have been postponed, And we have grown more AC segment. So we are growing faster in the AC segment because this bigger DC project has This had been postponed during the year. So yes, we're growing more in the AC segment, yes. Okay. Sounds good. And then a lot of other companies have talked about sort of supply issues, especially in the automotive industry and so on. If I am right, you have most of your supply base In Europe, but still have you experienced any supply issues? Or do you see raw material costs Going up significantly, that affects your component suppliers and your pricing. And can you talk a little bit about the supply side, please? We are working quite hard and have done during the year, of course, with this pandemic. And as you said, we have many of our supplies in Europe. And we have increased also our warehouse with components to our production to secure to not come in that situation that we can't build in the production. But on short side, we don't see any problem, and we're also working with a long sight view of that. So We can't see any problem at the moment. But of course, with that increasing, it Could be some problem, but we can't see it today at all. Okay. And then a final thing. I'm a little bit curious if you saw a trend during Q4 that demand was Weaker towards the end or stronger in the beginning or something like that. The reason why I'm curious is that the lockdowns and so on were Not as severe in the beginning of Q4. But towards the end of the Q4, it was more severe lockdowns and so on. So I was Interested to hear whether that had affected your sales trends, if you can see such trends. Now we couldn't see any of that trend in the Q4 at all. Okay. Great. Sounds great. Thanks a lot. Thank you. We have a follow-up question from Sowalia. Sowalia, please go ahead. Okay. Thank you. Can you please describe your closest peers within e mobility right now? I wonder if you're facing a lot of local competitors or like smaller players or how the environment looks like? Of course, it's a lot of competitors in this segment and especially, of course, in the wall box segment with not so many functions, so to say. It's a lot of competitors. But as I said before, we don't grow the range that we have for the private, public and BC, we think is the way forward. But of course, with a higher volume and more hybrids and a pure electrical cars, more competitors. But we are focused on our game plan to deliver a complete solution to the market. And of course, we're always looking at the competitors, but we're most focused on ourselves and doing the market and doing the right Okay. Thank you. We have no further questions on the phone line, so I'll hand back. Thank you, everyone, for listening, and have a good day.