Hello and welcome to today's GARO interim report first quarter of 2023 conference call. My name is Harry, and I'll be coordinating the call today. If you'd like to ask a question after the presentation, you may do so by pressing star one on your telephone keypad. It's now my pleasure to hand over to Patrik Andersson to begin. Patrik, please go ahead when you are ready.
Thank you welcome everyone to the presentation of the GARO's quarter one report 2023. 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 founded in 1939 that develops and manufacturers and sell innovative products and systems for electrical installation under our 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 long service life. The market demand for product and solutions to achieve fossil free society, which a growing number of players become aware of the environmental impact.
This makes the sustainable aspect a crucial factor in the choice of product and service. Next slide, please. We have two business areas, GARO E-mobility, which consists of our product area E-mobility , and the GARO Electrification, which include product areas, electrical distribution products, projects, and temporary power. We have operations in Sweden, Norway, Ireland, Finland, Poland, and in the U.K. We also sell in other European countries where we don't have own subsidies. We have started to establish operations in the German market, which we have previously reached through retailers, but we would now like to see higher market footprints. We have production facilities in Gnosjö and in Hillerstorp in Sweden and in Szczecin in Poland. We are approximately 550 employees in the group. Next slide, please. In the product area E-mobility, we develop and market all type of charges for rechargeable vehicles.
We have product and turnkey solutions for destination charges for all various places at home, at public places, workplaces, and along the highway. To make the E-mobility business even more complete, we also offer service agreement to help our customers with yearly service or updates. We believe it's important to make it easy for all users and make it possible to charge where people live and work. This area accounted for 33% of the total sales in the quarter. Next slide, please. In 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 markets.
Example of product are components, safety switches, meter cabinets, outlet box, outlet boxes, and plug and sockets, which are products used every day in different applications, such in new buildings, renovations, marina, and camping sites, and E-mobility solutions, contributed for 40% of the group sales in the quarter. Our product area project provides complete customized solution for all type of power supply for apartment, villa, industry, E-mobility solutions, accounted for 22% of the sales. Product area temporary power with a product portfolio consisting of temporary electricity, lighting, heating, and charging. Product used on construction sites and in events accounted for 5% of the sales. These four product area make GARO's offer unique and easy for the customer. An example of this is when the customer need a charging solution with different charges from E-mobility.
They will also need power supply from project and safety and installation product from electrical distribution products. This make it easy, simple, and safe for the customer and end users. Now over to Helena from some financial updates. Next slide, please.
Thank you, Patrik. I would like to start by looking at the financial summary for the first quarter. Net sales amounted to SEK 370 million, giving us a negative growth of 3% compared to the same quarter last year. While GARO Electrification continued to show growth, 5% compared to last year, this was more than offset by weaker sales within GARO E-mobility that dropped 17% in sales. Operating profit for the quarter came in at SEK 28 million compared to SEK 67 million for the same quarter last year. The lower profitability in the quarter is a result of lower sales volume in combination with a weaker gross profit and higher operational costs. During the quarter, GARO has concentrated the operations within GARO Electrification to one site in Hillerstorp. The move has negatively affecting the results with SEK 3.1 million as a one off cost.
Operating margins for the quarter came in at 7.5% compared to 17.5% last year. Next slide, please. Now looking into the two business areas separately, starting with GARO E-mobility. Net sales amounted to SEK 122 million, which was substantially lower than in the same quarter last year, giving a negative growth of 17%. The lower sales is to a large extent explained by the challenges of sourcing material, especially in the beginning of the quarter. This has again negatively affected our productions and limited our possibilities for delivery. However, the situation improved in the end of the quarter and we have managed to lower our order backlog a little bit, even if it's still high.
When doing a comparison with the same quarter last year, it is noticeable for us that the market has increasingly shifted to connected products also for home usage. This in turn has led the GARO sales of certain non-connectable home chargers to fall behind. During the quarter, according to our plans, we have started to make deliveries of our new charger, GARO Entity, which will also improve our access to components going forward. EBIT amounted to SEK 6.6 million, mainly explained by the lower sales volume, but also to some extent due to changed customer and product mix. In the quarter, we have established our sales office in Germany, a huge market within E-mobility. Germany is also a market with very high quality and safety requirements, which suits Garo's product range very well. Next slide, please.
In November, we launched a new product program and platform for destination charging with smart services. The product range are built on a whole new platform and encompasses services for use at home, in houses, apartments, commercial facilities, as well in public places. Sales of GARO Entity Pro started during the end of the quarter in Sweden and in the U.K. We intend to start the sales to the other markets in the second quarter. Our ambitions is always to offer our customer the most safe product and solution within electrical vehicle charging. The new product range and service will make a big difference to installers and users in several ways. New technology is being introduced. In the development of product high focus has been on safety standards and future services to make it easy for all stakeholders.
We will start sales of GARO Entity Compact during the second half of 2023. This product is made for use at home. Next slide, please.
Now let's look into the business area, GARO Electrification. Net sales increased by 5% and amounted to SEK 248 million compared to SEK 235 million last year. We have seen a stable market during the quarter. In Sweden, we are noticing a weaker construction market ahead, and the demand for new construction of residentials has decreased significantly. Within electrical distribution products, we saw good sales of standard components and power stations. These products are used in new production as well as in the renovation and energy efficiency of properties. Sales of car heater was lower compared to the last year, mainly explained by a mild winter. Project sales continue to grow. In Sweden and in Ireland, sales was driven by new construction, renovation, and energy efficiency of properties. In the U.K., growth is driven mainly by the build up of the charging infrastructure.
EBIT amounted to SEK 21 million. Margins came in at 8.5%, lower than the 15.3% in the same quarter last year. The lower profitability in the quarter is a result of lower gross profit and a higher operational costs. The profitability has been negatively affected by SEK 3 million as a one off cost due to the move to Hillerstorp. Next slide, please.
During the quarter, GARO has concentrated the operations within Garo Electrification to one site in Hillerstorp, 10 km from our headquarter in Norrköping. This provides possibility for growth and improved efficiency in production over time. Our strong growth within project business is to some extent a result of increased production capacity in Poland, where we have made room for expansion with the business area. Short lead time to customers are essential for sales within projects. We have said it before and will say it again, our business model with two business area completing each other is one of our core strengths. A good example of this is GARO Entity Heat, which will be launched in May during the exhibition Elfack in Sweden. This is our new car heat built on the same platform as the new charger, GARO Entity.
Next slide, please. On this slide, you can see our new production and logistic facility in Szczecin in Poland, which will be completed in summer 2023. The facility space is 15,000 square meter and will facilitate our considerable increase in capacity, primarily in mobility product, but also products within electrification. The total investments amount of approximately SEK 100 million. Next slide, please.
Cash flow from operating activities amounted to SEK -47 million in the quarter compared to SEK +12 million in the same quarter last year. This is a result of lower operating profit and a high net working capital. The reason for the continued high working capital is high inventory value and high customer receivables having higher invoicing at the end of the quarter. We have had investments of SEK 51 million, of which SEK 10 million were related to product development. GARO continues to invest in our new facility, Poland, where we are taking up a credit facility of similar size. The production facility will be ready during the second quarter and production scheduled to be up and running as from July, as Patrik just mentioned. Our net debt position amounted to SEK 246 million compared to a net cash position of SEK 2 million last year.
As of now, GARO is using a large part of its credit facilities, financing the ramp up of the production of GARO Entity. Our net debt position, excluding the effects of IFRS, that is the lease contracts, amounted to SEK 172 million compared to net cash position of SEK 38 million last year. Net debt to EBITDA amounted to 1.62%, which is still a sign of a strong balance sheet. We have an equity asset ratio of 50.8% and available liquidity, including overdraft facilities, of SEK 97 million. Next slide, please.
GARO's outlook, if we start with the short term, the lack of electronic components in the GARO E-mobility business area has impacted our production and delivery capacity in the beginning of the quarter. The situation improved on the end of the quarter. We will also reach planned production level of GARO Entity Pro by the summer, which also help the production and delivery capacity as such. On long term, housing production in Sweden has decreased considerably and is expected to be weak in 2023. Demand for commercial and public real estate is expected to remain good, and also renovation activities and investment into energy efficiency and electrification in general are expected to remain on a good levels.
Regarding the market for charging infrastructure is growing structurally with rising number of rechargeable vehicles, and we see a continuing strong trend with further expansion of the charging infrastructure in the European markets. Next slide, please. Thank you for listening, everyone, and me and Helena are ready for questions.
If you would like to ask a question today, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure that your phone is unmuted locally. As a reminder, that's star one for any questions today. Our first question of the day is from the line of Johan Skoglund of DNB Markets. Johan, your line is now open.
Good afternoon, happy to see that the mobility profitability has turned around. A question about the product mix here. Could you comment on what is weighing down?
In the E-mobility?
Yes, if I, interpreted you correct.
We have why we didn't have growth it is, as we mentioned, we have had some lack of components in the beginning of the quarter. In the end of the quarter, we got all the components, and we increased the deliveries both in charging station and also GARO Entity. Where we don't have increased is due to lack of components, therefore, negative.
Okay, thank you. A follow-up question on E-mobility. Could you please elaborate a bit about the European expansion? I hear the U.K. is coming along. How are the rest of the countries? Any updates you could provide?
Yeah, we have now, as we mentioned, start our operation in Germany. We have a new company, and we are now hiring people for the German market to expand the German market for 2024 and 2025. That is, of course, a long term investment. We are doing business as we have done before with utility companies and car manufacturer and other retailers in other countries. Of course, the European market is really interesting, especially now when we also could deliver the GARO Entity together with our charging station, when we have a good offer for the market. We are also invested in our U.K., with a new location during last year. We have invested in organizations.
Both U.K., Germany and other European market is very interesting for GARO.
That's really good to hear. Are there many necessary adjustments you need to make to enter the new countries, or would you say that those are mainly in place?
It depends which country we are talking about. As we have done now both in U.K., and Germany, we are starting from green fields or so to say, with a company and then employ people. Of course, it costs some money, but it's quite not so big investments. So it depends on market, which market it is, and how we will enter into the market. So it's quite hard to answer that question. It depends on the markets.
Okay, got it. Thank you. That was all the questions for me. Good luck with the Q2.
Thank you.
Thank you.
As a reminder to ask a question, please dial star one on your telephone keypad now. Our next question is from the line of Kenneth Toll of Carnegie. Kenneth, please go ahead. Your line is open.
Yeah, thank you. I was a little bit curious about the margin development in Electrification. It was down quite a bit, and even if you add back the costs for moving production, it was still down a bit, although sales grew some 5%. Is it due to product mix or end market mix or what happened, please?
Of course it is some product mix. We have also some few product areas that we haven't increased the price the much we need to. We have some adjustments to do with price, but the most is product mix in combination with some prices. Yes.
Okay. How do you see it going forward? Do you think you will manage to increase prices? Will the product mix swing back, or do you think it will be sort of similar in the next two quarters or so?
We have already done some adjustments. Of course, we have our price windows, so we will have some, month of lower margin in some product area. This is not the whole range. We can adjust some, but some we have to live with some month. Of course, it depends also on the product mix, as you mentioned. We think we could balance it quite well, but with some month delayed, so to say. We are not so afraid for that over time.
It's not that you are seeing demand being significantly lower across the board, so you need to take out employees or anything like that at the moment?
No, not at this stage, no.
Okay, great. On the E-mobility side, you and some other players talked about the home charger market, the consumer market in Sweden being quite soft in the second half of last year. Have you seen any effects from one of the players in that market having stopped selling products in Sweden? Have that made demand better or pricing better, or have you noticed any effects?
We can say the demand, of course, has been better. We have had a lot of discussion with different installers and end users, so it of course has given us a good window to make more business. When it come to price, we haven't, as you know, not, we will not be the cheapest charger. We think it's important to have them safe, and have a charger with a lot of functions, and that will cost some. Of course, it has opened the market for more business due to homes. Yes.
Okay, great. Yeah, I think, in terms of moving production, and in Poland and in Sweden, all of that will be finalized towards the end of the summer. That also goes for CapEx investments that end of summer, more or less, those projects will be finalized.
That's correct. The move in Hillerstorp is more or less finalized as of now. For the Polish establishment, the CapEx expenses, but also the move, that will all be done in June.
Okay, great. Now you have also started to ramp up production of the new, GARO Entity. Can you say anything about, you also wrote that, sales were really good in March compared to the, first two months and so on. Can you talk a little bit about the, experiences in ramping up production of this new product? Has it been according to plan, or have there been any troubles or so on?
It is going according to plan. Of course, when you have a totally new product, you also get into some small bumps in the roads. Of course, we have had some small bumps in the roads, but we have fixed that quite quickly. It's according to plan. We started the deliveries in March, and then we will month by month, ramping up the production and deliveries until summer. It's according to plan, yes.
Sounds great. That's all for me. Thank you.
Thank you, Kenneth.
We currently have no further questions on the line. As a final reminder, if you would like to ask a question today, please dial star one on your telephone keypad now. We have a question on the line here from Charlotte West of Lenovo. Sorry, you have, Lenovo. Charlotte, your line is now open. Please go ahead.
Hi, thank you. I have a question regarding the sales prohibit that the Easee got during the quarter. Have you seen any new clients coming in from that, or, is that too early to say?
Of course, we have got contacts with several new customers in that question. Yes, we have got some new opportunities. That's correct.
Yeah, that's nothing that you can see already in the figures for Q1, or is that more long-term?
No. Long-term.
Okay, great. Thank you.
Thank you.
Thank you. We have no further questions on the line today. I'd like to hand back to Patrik Andersson for any conclusion remarks.
Yeah. Thank you everyone for listening to GARO's Quarter One report 2023, and I wish you a good day.
Thank you, everyone. This concludes today's call. You may now disconnect your lines.