Ladies and gentlemen, welcome to the Garo Interim Report January to March 2020 call. My name is Bethany, and I'll be coordinating your call today. If you would like to ask a question during the presentation, you may register to do so by pressing star one on your telephone keypad. That is star followed by one, and you can cancel it by pressing star two. I will now hand over to your host, Patrik Andersson, the CEO, to begin. Patrik, please go ahead.
Thank you very much. Hi and welcome, everyone, to the presentation of Garo's Q1 2020. 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. Some information about the company and our market. Garo was founded in 1939, so we have been over 80 years in business. We develop and manufacture products and turnkey solutions for the electrical installation markets. We divide our business into business area Sweden, which consists of our Swedish operation, and other markets which cover our business in Norway, Ireland, Finland, Poland, and our newly established company in the UK. We have production on three sites: one in Gnosjö in Sweden, where we also have our head office, in Värnamo in Sweden, and the third one in Poland, Stettin.
We are approximately about 410 people in the group. Next slide, please. Product areas. Our business consists of four product areas, and on this slide, you can see the different product areas' shares of the total sales for the Q1 this year. Our largest product area is electrical distribution products, which contributes to almost half of our revenues, and where we had a stable development in the Q1 2020. Sales within e-mobility were at the same level as last year and also accounted for 23% of the total sales. Our product area project sales showed good development in the Q1 and accounted for 23% of the total sales in the quarter. Temporary power decreased and now constitutes 47% of the business. Next slide, please. Operational highlights. We launched our own fast charger named Althea, fully developed in-house and intended for the European markets.
I will come back with more details on the next slide. In the quarter, we also signed a framework agreement with a global player in the automotive industry regarding the supply of charging infrastructure for the European markets. We also launched and carried out an efficiency program resulting in the reduction of personnel in 18 positions, primarily comprising white-collar employees in Sweden and Poland. On May the 15th, after the quarter, we signed an agreement to acquire 70% of the shares in the EV Charge Partner Sweden AB. The company performs service and support, as well as commissioning of EV charging for mainly large operators of charging infrastructure and utility companies in Sweden and Poland. Next slide, please. Product development. As I mentioned before, I'm happy to say that we launched our own fast charger in the Q1. It's fully developed in-house and intended for the European market.
Garo's fast charger stands out in terms of user-friendliness, reliability, and durability. The design of the fast charger has the same line as the wall box and charging station to fit into the Garo range. This will give the customer a complete product solution. Garo fast charger is equipped with both CHAdeMO and CCS charging cables, meaning it can be used by all electric cars in the markets. The chassis is made of environmentally friendly materials, Magnelis. With this new product, we broaden our range of charging products and can meet the demand for fast charging, which is important when the number of pure electric cars is growing and will do so in the coming years. As I mentioned before, we have acquired EV Charge Partner. This company performs service and support of DC charging infrastructure.
Together with this fast charger, we can offer our customer a complete solution with products, service, and support. In the beginning of 2020, we launched the new wall box with two outlets, the Twin box. This product makes our product range even more complete and becomes of high importance when you need to charge two cars at the same time. Also, this product is, of course, designed to fit into the Garo range. Next slide, please. Sustainability. This is an important area for Garo and our stakeholders. We have chosen to focus on seven of FN's global goals. We believe that Garo can make a difference. We have chosen the goals 7, 8, 10, 11, 12, 13, and 16. During the Q1, Garo has focused on sustainable development, goal number 12, responsible consumption and production, with a focus on digitalization.
Garo strives to be the leading edge when it comes to digital solution. For example, we increased the digital solution such as QR codes on the products to make product manuals, instruction films available digitally. This way, we minimize printed material. They reduce the energy consumption. We provide our products with software and application solutions for an efficient and minimal usage of energy. We meet and train our customers remotely, which means we have done for a long time, but now we have increased this due to the COVID-19 situation. Now, over to Helena. Next slide, please.
Thank you, Patrick. Let's start with some financial highlights for the Q1 of this year. Overall, we are very pleased with an outcome where we can see stable sales in the Q1 in these very challenging times. Sales amounted to 248 million and is in line with the sales of last year, mainly as a result of stable development in most product areas, except for temporary power in Sweden and electrical distribution products in Norway. EBIT in the quarter amounted to almost 19 million, giving us a margin of 7.6% to be compared with 11.7% in 2019. The lower operating profit was, among other causes, by negative currency effects of 6.5 million when the Swedish and the Norwegian krona were weakened against the euro, which is an important purchasing currency for Garo.
We have also in the quarter seen a different product mix, giving us a slightly lower gross margin. Our expenses remained at the same level as in the latter part of 2019. Net income for the Q1 decreased to 14.6 million, giving us an earnings per share of 1.46. Next slide, please. Now, looking into net sales by product area. Electrical distribution products had a stable development in Sweden but weaker in other markets. Project business showed good development in the Q1. Temporary power continued to have slower sales in Sweden but stable in other markets, even though it comes from lower volumes. The demand of e-mobility products was weaker than expected in the beginning of the quarter but recovered in March, and by the end of the quarter, it remained in line with a long-term trend for growth.
We have seen a continued positive sales trend within e-mobility, also in April and the beginning of May. Next slide, please. Now, looking into the two segments separately, starting with Garo Sweden. Net sales amounted to 164 million in the quarter, which is an increase of 1% compared to the same quarter last year.
Please stand by, ladies and gentlemen. The line has dropped. I'm just reconnecting them.
I'm back, and we will repeat the effect of the COVID-19. The COVID-19 virus and the given restrictions to prevent the spread of the virus had a fairly limited impact on the sales in Sweden, but more so in Norway and Ireland and in the UK, where the authorities took more restrictive measures than in Sweden. The impact on sales in other markets was relatively small if the business activity fell sharply towards the end of the period. The sharp depreciation of the Swedish krona and Norwegian krona to the euro, which led to significant exchange rate losses, as a lot of purchases are priced in euros. Possible effects in Q2. In the Q2 up until today, we see a stable demand in Sweden while pending in other markets. Our factories in Sweden and Poland are running at good speed.
Of course, the longer the situation with the restrictions proceeds, the higher the impact on the group's sales and earnings. Next slide, please. Development opportunity. Our strategy remains the same. The main driver of the growth will be organic growth, as successful product development has been and will be the key to this growth. On top of this, we are always looking for potential acquisitions where we can add either new additional products, product areas, or companies with an edge. An example of this is the acquisition of EV Charge Partner Sweden AB, which was announced last week on May the 15th, to strengthen our offer in the e-mobility business. Another example is when we acquired Webull in 2007, bringing new and additional electronic and software knowledge to the company. We are also looking at new geographic markets with a focus mainly on the northern part in Europe.
Next slide, please. Outlook in Q2. The COVID-19 virus had so far a relatively limited effect on Garo's demand in Sweden. The risk for the group going forward is lower demand in the markets where the COVID-19 virus causes restrictions on the economic activities, which has been the case, for example, in Norway, Ireland, and in the UK. The longer this situation continues, it will gradually affect the group's sales and results in the Q2. As of today, the demand in Sweden remains stable, while the development in other markets is declining. At the same time, we have good speed in production both in Poland and Sweden. Outlooks on long term. Looking beyond the COVID-19 virus, our assessment of the core market conditions has not changed. However, great uncertainty prevails due to the COVID-19's long-term consequences on the economy.
The market for e-mobility is growing structurally, and we see a continued strong trend with further expansion of the charging infrastructure in all markets. Demand for construction-related production in Sweden, combined with the important renovation sector, is expected to remain stable. However, housing construction is expected to slow in line with a reduced number of construction starts. The trend in other markets, aside from COVID-19, is expected to be similar. All in all, Garo has a positive view of long-term market conditions, mainly driven by growth in e-mobility. Thank you, and now we are ready for questions. Can you hear us?
Hello, Patrik. Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question, please press star followed by one on your telephone keypad. We currently don't have any questions registered, but we can give it a minute. We have a question from Kenneth Toll from Carnegie. Kenneth, please go ahead. Your line is open.
Yeah, thank you. So you mentioned in the report that e-mobility sales were stronger towards the end of the quarter in Sweden and then sort of weaker in the beginning. Do you believe that e-mobility sales have picked up and will be stronger also in Q2, or is that a natural swing, so to say?
Yes, we think that e-mobility will be stronger in Q2. Of course, in the markets, as the effect of COVID-19, of course, is slower, but the demand in the Q2, we think, looks better. So it was a slow start in the beginning of the quarter.
Okay. And you also said that you signed these frame agreements, two of them last year and one in the beginning of this year. Have you started to ship any chargers on those frame agreements, or do you believe that is more ahead of you, so to say?
We have started to ship some small shipments, but we're just in the beginning of this framework. But we have started in a slow way in the Q1, yes.
Okay, great. And then on the currency situation, you said also that towards the end of the quarter, it looks better. So if the current rates prevail for the rest of Q2, we should not see such a bad effect on earnings. Is that correct?
Yes. I think a lot of it was taking in the Q1. A lot of the currency effect, so to say, was taking in the Q1 since that's when we had the bigger drop, so to say.
Yeah. So we hope for a more stable currency, but everything can happen with this situation. But we think it looks more stable from our side. Yes.
Okay, great. And then finally, you also did a restructuring program, and some 18 employees left the group. The cost for this, had that been taken? And when will we see the savings affecting the P&L?
The cost for that will come in next quarter, and we will see the effect in Q3 and Q4, yes.
Okay. And will it be a significant cost, and will you take it as an extraordinary cost, do you believe?
There will be some of it that will be taken as an extraordinary cost since some of the staff affected will go on garden leave, but the majority will become, well, so to speak, recurring.
Okay. Okay. And do you have an estimate roughly how much cost it could be?
No, we have no number at this stage.
Okay. Okay, thank you. That's all from me for now.
Thank you, Kenneth.
Thanks.
Our next question comes from Oscar Vikström from ABG. Oscar, please go ahead. Your line is open.
Okay, thank you. Hello. My first question is also related a bit to e-mobility. I think you're mentioning there that March in Sweden was quite staggering, 46% growth. Is that year over year, and is it also the sort of levels that you've seen in April, May, or how should we view that?
If I understand your question right, you mean we have had a slow start in January, February, and better in March, and then your question was, is it the same trend in April or May? If I understand.
Yes.
And if that's the question, yes, the trend is better in April and May, yes. But of course, as I said to Kenneth before, the markets were affected by the COVID-19 situation, of course, slower, but we see a better trend in the demand in Sweden for e-mobility, yes.
Okay. And just to confirm, so the 46% growth that you're mentioning, that's from March last year, so year on year?
Yes.
Yeah. Okay. And in terms of Norway, you're mentioning so there you're doing more DC chargers, and it's a bit of a different sort of sales process. How has that developed so far in April and May, and how should we look at the Norwegian segment in terms of e-mobility?
The Norwegian segment, of course, has been a bit affected by the COVID-19 situation, a bit slower in the market, but we have had quite good business on the DC segment during March, and we can also see the demand for Q2 and Q3 looks quite good for the DC sector, so we are quite optimistic for the DC charger for Norway.
Who is the typical customer here? Is that sort of government or?
Oh, it's mostly utility companies.
Utility companies. Okay.
Yeah.
Okay. And then I was just a bit curious. You're mentioning the negative product mix impacting the gross margin. That sort of mix, is that something that has stayed with you so far in Q2, or has that changed a bit?
We can see some changes. We have had an uncertain product mix in the Q1 . We can see both on the project business, and we have had a quite warm winter, so to say, in the Q1 , so we have, for example, not sold so many car heaters, so to say. We have a bit of another product mix what we are used to, but we think that will be better in the Q2, yes.
Okay. And just sort of a final question. You mentioned also that you have tied up a bit more working capital this quarter. Could you just comment a bit on why that is and how you view that progressing over the year?
We will stay within the same limits or same need as we had for 2019 over time, so to say. But by the end of December, we had, if you look in the balance report, we had some debts that were paid off in Q1 that affected, and also a little higher stock inventory. So it's nothing unusual.
Yeah. Okay. Cool. Yeah, that was all from me. So thank you very much.
Thank you very much.
Thanks.
We have a follow-up question from Kenneth Toll again. Kenneth, please go ahead. Your line's open.
Yeah, thank you. Yeah, I was just thinking more about inventories. One question is, have you sort of added more inventory of components in order to safeguard your business if there are logistic problems, or have you seen that your customers may sort of build up inventories, or yeah, have you seen anything like that?
We keep an eye on our inventory level at all times, but now, due to the COVID-19 situation, we have, so to say, given ourselves some grace period here to have a little bit higher, perhaps, to make sure that we have components enough to keep production up and running.
Okay. And your distributors and so on, do you believe they have ordered extra from you, or?
No, we can't say that. They keep the inventory, but we can see about the same level.
You haven't had any problems in the quarter with getting some components or so on?
No, we have kept a very good level on all components, maybe some single components, but nothing big at all. So our supply team have done a great work to have components for our production site at this time.
Okay. Great. Yeah, that's all from me. Thank you.
Thank you, Kenneth.
Thank you.
We have no further questions at the moment.