Hello, everyone, and thank you for standing by. The GARO Interim Report, January, June 2023 conference call will begin shortly. Our host for today will be Patrik Andersson, and you'll have the opportunity to register for a question by pressing star one on your telephone. Thank you for your patience. The conference call will begin shortly. Please stand by. Hello, everyone, and welcome to the GARO Interim Report, January, June 2023 conference call. My name is Bruno, and I'll be operating your call today. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. I will now hand over to your host, Patrik Andersson. Please go ahead.
Thank you, welcome everyone to the presentation of GARO's report for Q2 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. Let's start with an introduction. GARO is a company founded in 1939 that develops and manufactures and sell innovative products and system for electrical installation under own brand in the European markets. Developing products that are at the forefront has always been a significant aspect of our success. Our focus is on developing user-friendly and safe products with a modern design and a long service life. There is a market demand for product and solutions to assist in establishing a fossil-free society, in which a growing number of players are becoming conscious of their environmental impact.
This makes the sustainability aspect a crucial factor in the choice of products and services. Next slide, please. We have two business area, GARO E-mobility, which consists of the mobility products, and GARO Electrification, which including the electrical distribution products, project business, and temporary power. We have operations in Sweden, Norway, Ireland, Finland, Poland, and in the UK, and we also sell in the European countries where we don't have own subsidies. We have also begun to establish operations in the German market, which we have previously reached through retailers, but we would now like to see a larger market footprint. We have production facilities in Gnosjö and Hillerstorp in Sweden and in Szczecin in Poland, and we are approximately 550 employees in the group. Next slide, please. In the e-mobility product area, we develop and market all types of chargers for rechargeable vehicles.
We have product and turnkey solutions for destination charging for various locations, including at home, in public, at working places, and along the hi- highway. To make the e-mobility business even more complete, we also offer a service agreement to assist our customers with annual service, updates, et cetera. We believe it's important to make it easy for the user and to make it possible to charge in locations where people live and work. This area accounted for 36% of the total sales in the quarter. Next slide, please. The largest product area in the Garo Electrification business is electrical distribution products, consisting of approximately 3,500 products and turnkey solutions for the electrical installation markets.
Example of products are components, safety switches, meter cabinets, outlet boxes, plugs, and sockets, which are products used daily in different applications, such as new building, renovations, marine and camping sites, industry, and of course, e-mobility solutions. This product area contributed to 38% of the group sales in the quarter. Our product business, product area provides complete and customized solutions to all type of power supplies for apartments, single-family homes, industry, and e-mobility solutions, and accounted for 22% of the total sales. The temporary power product area, which has a product portfolio consisting of temporary electricity, lighting, heating, and charging, as well a product used on construction sites and events, accounted for 4%. These four products area make Garo's offer unique and easy for the customer.
An example of this is when the customer requires a charging solution with different charges from e-mobility, also requires power supply for project business, and as well, safety and installation product from electrical distribution products. This make it easy, simple, and safe for the customer and end user. Now over to Helena for some financial updates. Next slide, please.
Thank you, Patrik. I would like to start by looking at the financial summary for the Q2 . Net sales amounted to SEK 386 million, giving us a growth of 10% compared to the same quarter last year. GARO E-mobility increased the sales with 47%. During the quarter, our production in this business area was gradually ramped up as a result of an improved material supply situation with fewer supply chain disruptions. Sales in Garo Electrification decreased with 5% as a result of a weaker economy in the market in general. Operating profit for the quarter came in at SEK 80 million, compared to almost SEK 40 million for the same quarter last year. This gives us an operating margin for the quarter of 4.7%, compared to 11.3% last year.
The higher sales in the quarter was offset by lower gross margins and some currency effects compared to the same quarter last year. During the first half of this year, in order to maintain long-term growth and profitability, we have implemented several changes in terms of premises, organization, and market activities. Now back to you, Patrik, for some operational highlights. Next slide, please.
Thank you, and let's start with GARO E-mobility. After the end of the quarter, Garo signed a frame agreement with E.ON Drive Infrastructure, covering products and solutions for public charging in Europe. E.ON Drive Infrastructure's choice of Garo as a supplier demonstrates that Garo's products maintain a high level of quality and safety, and that we had good delivery capacity, and established the support and off-the-market operations. The safety aspect of product development has always been Garo's primary focus. Therefore, Garo has elected to third-party certify GARO Entity Pro, a TÜV SÜD in Germany, to ensure that the product is quality assured to the current directives, laws, and standards, and passes the stringent testing carried out from during product development. GARO Entity Pro has, with this approval and the built-in safety solution, a unique wall box.
End users, customers, and installation engineers can therefore be confident that the product delivers what it promises. On the first of September, GARO Entity Compact will go on sale, and deliveries to the market will begin in late September, early October. This is a smaller version of GARO Entity and will mainly be used in single homes and outside apartments. We go further with Garo Electrification. At the Nordic region's largest trade fair, Elfack, in Gothenburg, we presented the new product, GARO Entity Heat, a new car heater, and GARO Entity Flex, a portable electrical car charger. Both products are based on the same platform as GARO Entity Pro, deliveries on GARO Entity Heat will begin in September. Demand for products related to new construction has decreased, primarily in Sweden and Norway.
As a result of the financial situation, there is a weaker demand for new residential and major property projects. In parallel, demand for products related to the renovation and energy efficiency of building and production connected to the green transition is stable. We have said it before and say it again, our business model, with two business areas completing each other, is one of our core strengths, both in terms of product development, but also sales, and of course, for the end user. Growth and profitability, a major focus area will be cost control and improving gross margin to measure such increased production efficiency and price adjustments. Our new production and logistic facility in Poland was completed as planned and commenced operation in July.
The production was therefore relocated from the existing facilities, and we have started a process to sell the building, valued approximately to SEK 45 million. Now over to Helena. Next slide, please.
Yes, I will continue with the two business areas separately, starting with GARO E-mobility. Net sales amounted to SEK 152 million in the quarter, giving us a growth of 47% compared to last year. With greatly improved access to components, we have reduced our order backlog during the quarter, now have significantly shorter delivery times. In Sweden, the current market situation, with among other higher interest rates, means that many households are now postponing their investments of, for instance, an electric car. This is affecting GARO sales of home chargers to private individuals. Outside of Sweden, we have noticed a strong sales trend in the Nordic region during the quarter, with sales in Denmark more than doubling year-over-year.
In general, the demand for charging stations for larger projects at commercial properties, public places, and tenant owner associations remain high, and this is now the current main driver for the growth in this business area. EBIT amounted to SEK 4.5 million. The highest sales volumes have been offset by a weaker gross margin. Compared to the same quarter last year, we have seen a different customer and product mix, as well as higher purchase prices, where the weaker Swedish krona has had a negative effect. Next slide, please. Now we look into the business area, Garo Electrification. Net sales decreased with 5% and amounted to SEK 234 million, compared to SEK 247 million last year. Not surprisingly, demand for products related to house manufacturers, new construction, was down sharply as a result of a weaker economy with rising interest rates.
In general, the market has slowed down, and it is our opinion that the market is more cautious now, with reduced number of project starts for new housing in Sweden and the rest of the Nordic region. At the same time, there is a good demand for products related to renovation and energy efficiency of buildings. The market connected to the green transition is also considered to be favorable, which is driving sales in several product groups. Compared with last year, for the Nordic countries, including Sweden, sales dropped with 11%, while we noticed growth of 18% in the European market outside the Nordics. As an example, Ireland is a market that showed a healthy development in terms of new housing construction during the quarter.
Our project business, coming in late in the construction cycle, continued to show good sales, with growth of 10% compared to last year. EBIT amounted to SEK 14 million, giving us an EBIT margin of 5.8%, down from 14.8% last year. The lower EBIT in the quarter is the result of lower sales, combined with a weaker gross margin due to production inefficiency and higher purchase prices. Furthermore, in Norway, GARO has initiated a change in the sales organization and its sales process on the Norwegian market, which resulted in a one-off cost in the quarter. Next slide, please. Cash flow from operating activities amounted to a negative SEK 3.5 million in the quarter, compared to a positive of almost SEK 34 million in the same quarter last year. This is due to lower operating profits and a continued high need for working capital.
Working capital tied up in component inventories remained high, where GARO is now increasing their production volumes for GARO Entity. We have investments of SEK 26 million in the quarter, of which SEK 8 million were related to product development. For the first half of this year, our investments in the new facility in Poland amounted to almost SEK 54 million. As Patrik said, the facility is now more or less finalized, and we have used the summer vacation to relocate to our new facility. The total investments in our new facility in Poland amounts to almost SEK 100 million, and we are now starting the process of selling off the existing facility. Our net debt position amounted to SEK 308 million, compared with SEK 52 million in June last year, where GARO is now using a large part of its credit facilities.
Our net debt position, excluding the effects of IFRS 16, amounts to SEK 236, compared to SEK 17 million last year. In the quarter, the first dividend payment of SEK 20 million was distributed to the shareholders. The second and remaining payment of SEK 20 million will be paid out in November. We have an equity asset ratio of 49.4% and available liquidity, including overdraft facilities of SEK 80 million. Now back to you, Patrik. Next slide, please.
Thank you, Helena. We go further with GARO's outlook. In Sweden and the rest of the Nordic region, the construction of housing has declined. New production of single homes and apartments is expected to be weak for several quarters moving forward. Demand for other commercial and public construction, combined with the renovation re- requirements and energy efficiency, remains favorable. The market for charging infrastructure is growing structurally, with rising numbers of rechargeable vehicles. We see a continuing strong trend with further expansion of the charging infrastructure in the European markets. As Helena previously mentioned, demand for charging stations for larger projects at commercial properties, public places, and tenant-owned associations is high and is currently the main growth driver in the GARO E-mobility business.
The current market situation with higher interest rates means that many households are postponing their investment, which is affecting sales of home chargers to private individuals, primarily in Sweden. All in all, we have a positive long-term view on the market condition, mainly driven by growth in charging infrastructure and its recruitment for power supply. Next slide, please. Thank you, everyone, for listening. We are now ready for questions.
Perfect. Ladies and gentlemen, if you'd like to ask a question, please press star followed by one on your telephone keypad. That's star followed by one on your telephone keypad. To withdraw your question, press star followed by two, and please to also remember to unmute your microphone when it's your turn to speak. Our first question comes from Olof Cederholm from ABG. Olof, your line is now open. Please, go ahead.
Hello, Patrik and Helena. Just, it's Olof from ABG. Just a quick question on margins. Net sales in e-mobility grew by, you know, 50%, pretty strong development, or almost 50%, but the margin just remained where it was a year ago. What are we missing here? Are you delivering out of an order book where costs have sort of squeezed margins during the time of those orders being in the order book? Can you talk a little bit, little bit about the dynamics here and how we should expect the profitability in e-mobility to develop during the second half and into 2024? Thank you.
I think this is a little bit a mix of, of all the examples you mentioned. Yes, we have delivered from our order book, where some of the price increases that we've done in the quarter has not, so to say, affected the already placed orders. That is one of the reasons. Compared to last year, we see a different product, customer mix, I should say, where we are more selling to, say, key accounts, with a little bit another kind of price strategy than compared to, for instance, wholesalers. We have also seen a different product mix, where the large part has been some of the products that are a little bit lower in their gross margins as such. It's, it's a mix of all, really.
Going forward, it's the change in, in products and customers can vary over time. It's hard to predict where the volumes per quarter is, but I would say with higher volumes coming, we should have an increased gross margin overall.
Okay. Is it possible to somehow attribute a level of importance between the lagging price increases and the customer mix? What has been the most negative for you?
I don't think I can elaborate on that. Sorry.
Okay. Okay.
Yes.
Thank you. That's all for me.
Our next question comes from Johan Skoglund from DNB Markets. Johan, your line is now open. Please go ahead.
Thank you. Hello, Johan from DNB here. Just a quick question on the cash position. With the Poland investment now completed, what are your CapEx plans for the rest of the year, and do you have any other large investments on the horizon?
Oof! The remaining CapEx expense for the year? Well, I think we should be more down to where we were before, maybe SEK 30 million-SEK 40 million, so to say, excluding, yeah, what, what we've done in the facility in Poland. We will always continue in product development, R&D, but otherwise, we have a, a very modern and up-and-running, so to say, establishment, both in Poland and in Sweden, where there are no, so to say, backlog of investments.
Okay, thank you. Is it possible to quantify the impact of selling the old facility in Poland?
One more time, I didn't hear you.
Is it possible to quantify the size of the divestment of the old facilities in Poland, or is that confidential?
I would say that is confidential. It's worth SEK 45 million, approximately.
Okay, thank you. No further questions from me, and good luck with the Q3.
Thank you.
As a reminder, ladies and gentlemen, to ask a question, please press star one on your telephone keypad. That's star one on your telephone keypad. Our next question comes from Kenneth Toll from Carnegie. Kenneth, your line is now open, please go ahead.
Yeah, thank you. a couple of questions. First, on the e-mobility, you said that in Q2, you were able to work off an order book. Now that that order book has been worked off, do you expect to see lower sales going forward, or, or do you believe that the incoming orders are supporting good sales volumes also for coming quarters?
first of all, of course, we have, we have, lower our order book, but we, but we still have an order book. So, so we have still some delivery times to reduce, but we are now on a better level and can deliver in a better time. Still order book, but of course, new orders, is, of course, needed, and we are working on that, but, we have some order book left still.
Okay, great. You're talking about more focused on profitability, which is welcome, of course. One part of that is pushing price increases. Do you think you will be able to do that now, when demand is weakening in, in the residential construction area? Do you see more price pressure and more competition there?
Of course, in some product and product areas, you could increase prices. Of course, we'll have also to, to work with the, the prices when we are supply products from, from both ends, so to say. We need better prices of, from suppliers, but also push the prices to the market. Of course, when we have this euro situation, we also need to push that to the markets. Of course, we can change prices, we need to change prices, but some article numbers we are, we are in, in, as we mentioned in the report, we can do that with two windows. We have to do that, and, and some customized product, we can, can change prices whenever we want, we need to, so to say.
We will work with that, both prices to the market, but also material when we supply. That is our focus.
Okay. Great. Also the, the, the startup of sales in Germany, where are you on that? Have you got your first order from the German sales office?
We can say it like that. We are, we are just at the moment, recruiting, employees. Of course, we are still already doing business in, in Germany because we have done that before we had the, the subsidy, so to say. We have good connections with the German customers, but we are still working on the organization. We will come back with that during-
Mm
Q3 , so to say.
Mm, great. On the balance sheet, we discussed already the, the plant divestment that you're planning and also that investments should go down. Do you think you will be able to lower working capital as well now that the move to the Polish plant is finalized and you, you're starting up production there?
Yes, I would say that is. Absolutely, we, we will see lower working capital. It might not happen in the Q3, but when now, when the, when the bigger volumes of GARO Entity is up and running, we will start using all of those, so to say, strategic purchases we've done earlier.
Mm.
The inventory of components, should go down.
Mm, great. And the, the, sort of lack or shortage of component, it, it's not really an issue anymore, or?
No, it's not.
Okay, great. Yeah, that's all for me. Thank you.
Thank you, Kenneth.
We currently have no further questions, I would like to hand over back to the management team for closing remarks.
Thank you, everyone, for listening for our report. Have a nice day. Bye.
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.