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Kempower Oyj
OMXH:KEMPOWR

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Kempower Oyj
OMXH:KEMPOWR
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Price: 9.99 EUR 1.37% Market Closed
Market Cap: 553.6m EUR
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Earnings Call Analysis

Summary
Q2-2024

Weak Q2 Performance with Plans for Recovery

Kempower faced a difficult Q2 2024, with revenues dropping to EUR 57.1 million and a negative EBIT of EUR 8.5 million due to high customer inventories and slower-than-expected order closings. The North American market showed promise with a 569% revenue increase. Kempower revised its 2024 guidance, projecting annual revenues between EUR 220-260 million and expecting to break even in Q4. The company targets EUR 10 million in annual cost savings through layoffs and spending cuts. Despite the current challenges, Kempower remains committed to expanding its customer base and new product innovations【4:0†source】【4:1†source】【4:2†source】.

Earnings Call Transcript

Earnings Call Transcript
2024-Q2

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P
Paula Savonen
executive

Good afternoon, everybody, and welcome to this webcast where we present Kempower's financial results for the first half of the year 2024. My name is Paula Savonen. I am the VP of Communications at Kempower, and also the host for today's webcast.

Today, we have 2 presenters. We have our CEO, Tomi Ristimaki; and our CFO, Jukka Kainulainen. You can ask questions any time during the presentations by typing the questions in the Q&A box on your screen in Finnish or in English, and we take all the questions in the end of the presentations. I hope you enjoy the presentations.

And now, over to Tomi.

T
Tomi Ristimäki
executive

Thank you, Paula. And looking at the current situation, of course, it's not as positive news as we have had in the past. So poor financial performance in the first half of the year due to continued high inventory levels at the customers, and not able to close orders from new customers to actually fulfill the gap missing. And it's good to remind us well, when we compare like order intake that we are comparing now to our record quarter in 2023, which shows actually big, big difference.

High inventory levels on our customer side prevail. Excess stocks are quite substantial. And looking at this situation from the point of view and as a reminder, it's typical in the DC charging industry. The customers are not buying the products to sell them. They are buying them to install them. So basically, also when we look at the slowness of installation is affecting this figure.

Sales development, that is a positive news. We look at 17 new customers onboarded during the quarter, 32 in total for the first half. And just as a comparison, how this is related to our typical amount of customers, customers generating revenue. We had also in our review the number that there was around 30 customers who were over the EUR 2 million ordering revenue, let's say, revenue from last year.

And good progress with retail customers continues. We could remind on the S Group, K Group from Finland, looking at our expansion with Sainsbury's in the U.K., and the new reference Q8 gas station chain from Belgium.

And also, this kind of fact that, new players without the excessive stock are entering the market and these are becoming more and more important for us as well. And the story of the quarter is really the decreasing revenue from the existing large customers and looking at our top 20 this is even up to up to EUR 75 million in total, when we're comparing the first half of last year.

Market situation, based on market data installations are growing compared to Q1 2023, but sales growth is affected that this growth to the installation is coming actually from the stock and not from new sales, which is now showing the situation at the whole charging manufacturers value chain in the process.

And turnaround actions are ongoing. And actually, we have been talking a lot on the focus on the long-term, mid-term. We need to focus now on the short-term, and go back to the profitability track, and increase the focus in supporting the customers in charge of rollouts to actually do everything what we can to speed up, let's say, the emptying of the stocks and also the onboarding of new customers.

High inventory levels are still, and where did it come from? Is component shortage after COVID-19 and fear of component shortage led to abnormally high demand for DC charging equipment. This can be actually seen in many industrial markets, similar kind of behavior.

And in our industry, also the slowness of rolling out the chargers in the use caused by basically, the normal pace of getting the grid connections on the market compared to the high amount of chargers ordered is actually a combination of the reason of creating these stocks.

And high ordering is actually visible when we compare the largest clients from first half of 2023 to first half of 2024, and the value of EUR 75 million is significant when looking at our revenues. And based on our data coming from our cloud system, ChargeEye, we estimate the value of excess stock of the equipment in our customer stocks to be approximately EUR 100 million, which by coincidence is actually exactly the same revenue of our first half, which actually puts into perspective. Let say the -- the importance of this value. And we expect the value to decline slowly during the second half of the year.

There is movement to better when we look at the data. It is speeding up and I will come back to you when we look at how the DC charging market is growing actually at the moment.

Sales development, we mentioned the 17 new customers, 32 in total for H1 in 2024. This is really much in our focus as well that when the old customer base has excessive stock that we look for the market and really focus on new customer acquisitions. And good progress with retail chain customers is continued as a good example already mentioned Q8 project in Belgium.

Decrease in sales from existing large customers due to excess inventories and we need to really help our customers in charge of rollouts and do whatever we can so the focus points on short-term trying to get the rollouts fast and actually the onboarding of the customers fast.

And some of the nice references still from this period, not to be completely sad about things so definitely the K-Lataus from Finland a part of Kesko big retailer in Finland. It's a nationwide EV charging network and the rollout started during the first half, which was also announced by us in the press releases.

Then after Q8 and Storm already mentioned, but this is a really good example a few retailers entering the EV charging market, because it's also very important when we look at this on-route charging along the highways. The fuel retailers have perfect sites and the services for this industry and actually serve the EV drivers on the market. So this is a really good example of that.

And electrifying of ports, there was a -- let's say, kind of very significant for us, the largest charging system for port operations delivered to U.K. with the globally leading port operator, and this is definitely not the only single project, I think we are looking at this market also seriously this part of the commercial vehicle market part of the off-highway market, however, you want to segment it. But definitely, the electrification has gone forward in the port segment quite heavily.

And progress in North America. Market entry is progressing and going really into the right direction. We are gaining foothold and good reputation in the market and customer acquisition in the U.S., 20% of these reported new customers during the quarter has come from North America. Especially, important is the nationwide U.S. CPO customer as an example.

In the U.S. market we do not face the same excess inventory challenges as in Europe and revenue from North America through that grew by 284% in the first half of the year and actually more than 500% when you look at only the Q2. And expansion and entry support our growth strategy.

And actually, it's very important at the moment when we see like regional challenges on the market that we have diversified market base, this is definitely part of also risk handling on the market that we have kind of access to the U.S. market as well, where the growth is even faster than in Europe.

Market situation like promised, DC charging installations during this year have steadily grown as predicted 20% and 40% in North America. And this is based on data, third-party data we used in market analysis to look at the actual number of charges installed to the market, and the same data also showed that market share of Kempower has remained at the same level, and because of the market is growing.

I think we see here good signs of the market, but unfortunately when we measure the growth in sales, that most of the goods are coming from the destocking, and affecting the whole value chain position of DC charging equipment manufacturers, and other charging manufacturers also affecting the AC charging. So this is kind of a trend in here.

So definitely the market is growing, the networks are growing in Europe, and like we see the double growth in North America in percentage. This is definitely a sign that we are not in -- like mentioned, maybe in some press that the market is declining. It's actually growing. But when we look at in the short-term, it doesn't affect the sales figures because of the prevailing stock situation in Europe. We expect the current market situation for the DC charging market to prevail when measured sales until beginning of next year.

Long-term market view remains unchanged. We expect the markets to change to quite big value of EUR 14 billion in 2030. So when we look at the midterm, long-term, the situation has not changed and there is actually signs on the market that it's getting better. And there will be a question about the stock situation. The increased amount of installation actually shows that not only the grid connections and the utilities are getting better, so they are getting 20% better in getting the new grid connections. The market is getting 20% better in actually having more charges on the field. So this is basically something that we estimate to be a situation now affecting the sales.

And when we look at the EV registration. There has been also different kind of data, especially on the media, what is happening. When we look at the big markets in Europe, the single one with the lower figures in EV registration is Germany. There is also a clear reason for that. There was discontinued subsidies in the end of last year, especially concerning company cars and this kind of car benefit cars, that is a tax. And that showed actually a decrease in sales and this decrease in sales in the end of last year.

We see now in the decrease of registrations. But comparing double-digit growth in some of the major markets and totally when we look at U.S. or Europe. The amount of electric vehicles is on the positive. The change is going in the positive direction.

With the total macroeconomic situation, we see that the car industry is lower now. So we are experiencing now a single-digit growth in both markets but growth nevertheless. And when we look at it from our perspective, DC charging perspective, it is also a lot communicated from us before that there is an investment debt in the market. So there is too little amount of infrastructure already for the existing cars.

And when combined with the growing figure of electric vehicles, the situation does not get better until more infrastructure is built and eventually, if there is no infrastructure. Of course, this affects also the buying behavior of electric vehicles. So its -- especially on the countries where the infrastructure is behind. The change is below. We see especially for me very positive figures as U.K. and France having significant growth in here.

Profitability improvement, really the topic of the day. I think our CFO Jukka will return to the subject with more details. The decrease in revenue has also a negative effect on Kempower's profitability. We are very much dependent when we look at the bottom line on how much is on the top line. And the top line is lower. And we actually see it now in the profitability figures.

Kempower accelerates actions to improve the company's profitability. And as part of that is initiated change negotiations, which means lowering the resources. When looking at full-time equivalent on the employees.

Target is to achieve EUR 10 million in cost savings annually, compared to cost level at the end of second quarter in 2024. And this is also communicated by us that this will actually turn the profitability to breakeven by Q4 this year. And the plan is followed rigorously in the company. And we also implement other profitability related measures, quick related to all external spending with the goal of turning the business profitable towards the end of 2024.

And the next-generation product portfolio, ramping mark-up production of our next-generation product portfolio has progressed well. Production volumes of next-generation product portfolio have risen steadily. This is of course some topic that has been also part of the discussion, when we have a market situation. We have a new product ramp-up as a combination. Of course, it's many things at the same time but the new technology and actually introducing it now will strengthen our position as a technological front runner. And open new markets in DC charging market globally.

And this is really important, when we look at the combination and the effect. We are looking at the energy efficiency figures of products. And this is important to stay competitive in the long run, as with any industry related to energy sales.

Technological development, we have successfully launched the first products. For Megawatt Charging System, this is mainly for electric trucks. But we look at other big vehicles in the same segment. And this is first delivery as well, first public delivery that was announced by Hedin Automotive in Sweden. And then another topic on top of Megawatt Charging, we released NACS, North American Charging Standard protocol and connector. And the deliveries have started in Q2 2024 from our U.S. factory.

And we have witnessed increasing demand for NACS connector in North America. And modular, scalable, dynamic user-friendly charging solutions for all charging applications. This is even more important than in the past this modular approach. This has been enabling us to enter the Megawatt Charging standard fairly fast. Because we can use the same unit and in this picture, we are looking at the bus charging, vehicle charging in the same picture. Same applies actually to Megawatt Charging System. We can deliver mixed systems. So far as known as the only one on the market. So basically in the new Megawatt Charging System, the investment is not only serving the new electric trucks which have the Megawatt Charging System. The same investment can be used in CCS charging, providing the ability to actually serve multiple markets with the same investment and also in typical truck charging. The overnight charging most likely will be done with CCS and many smaller vehicles in commercial vehicles will be actually without the Megawatt Charging standard. So this multi-modality like we say. Multi-use is a key feature there.

Not to mention, this is the main differentiator for us from our main competitors that we look at the move to electric transportation. As an event that you will have a lot of vehicles and not a single vehicle. We do not only focus on how to charge a single vehicle with certain power. We focus on how to move fleets of electric vehicles through the market and actually have a functioning total ecosystem for electric vehicles in the future.

Sustainability, this is another of course key topic because next year companies need to report the CSRD figures and this is progressing also in the Kempower side, and we are preparing ourselves for the reporting and also enhancing the EU taxonomy reporting and also looking at the growth of our charging network. There is 903 megawatt hours per day going throughout charges to electric vehicles. So already looking at from the sustainability view, this energy amount will not be produced by fossil fuels, this is going with an electric.

Short-term focus. Kempower is taking decisive actions. Increased focus in better developing the customer relationship with new customers for faster sales executes. This was really the topic of the beginning of the year that we need to get all the help we can for our customers to be faster in rolling out the products to the market.

Significant short-term and mid-term cost based adjustments to improve the profitability and cash flow. And improve the net working capital and reduce the inventory levels during H2 in order to improve the cash flow. I think the inventory levels is also a thing that is related to the new guidance that we need to match both our resources and also the inventories in the -- our new guidance.

And now I give the floor to Jukka to go through the figures.

J
Jukka Kainulainen
executive

Thank you, Tomi. Okay, let's go to financials. And starting from key figures for quarter 2 2024. And it was majorly impacted and negatively impacted on the following factors. First of all, like Tomi mentioned, we did it or we were not able to close the orders as we expected during the quarter. Also, the inventory levels on the customer side continued to stay on the high level and also the ramp-up of the next-generation charging portfolio impacted also on the quarterly revenue.

Also on top of that, the quarter 2 financials was negatively impacted by the provision changes worth of EUR 3.7 million, including the inventory write-down of EUR 2.2 million, which also impacted on our gross profit margin figure.

On top of that, our operating cash flow was negative for the quarter of course, resulted from the negative result, investments, and on top of that, increased net working capital, regarding especially the inventory levels.

So when looking at the figures for the quarter 2, order intake was EUR 54.1 million, revenue was EUR 57.1 million, gross profit margin was 44% and operative EBIT was negative by EUR 8.5 million.

So it was a really weak quarter financially, and of course, this is not the level we are satisfied with. When going to the order intake for the quarter that was of course clearly the disappointment and it was impacted like I mentioned in the earlier slide by the -- I will not succeed in the closing the orders, but of course also this continued high inventory levels on the market.

So the order intake for the quarter was EUR 54.1 million, so down from the last year quarter 2 number EUR 86.3 million. Even though adding to that our customer acquisitions has continued really positively but like also Tomi mentioned, we haven't been able to compensate the drop in the top customer's orders worth EUR 75 million with the new orders from the new customers yet. Order backlog at the end of the quarter was EUR 101 million.

Then when looking at the revenue, also similar factors was impacting our revenue which decreased from the previous year quarter 2 and was EUR 57.1 million. So inventories continued to be on the high level, as I mentioned also earlier, but also we continued ramping up this next-generation charging portfolio.

And regarding that, we were not fully in those production volumes we expected. We were slightly behind, so that impacted our revenue during the quarter 2. And then even though all the other regions were down in quarter 2, of course, the positive highlight was the North America, which grew their revenue by 569% during the quarter 2. So it's definitely going to correct direction regarding the North America.

Then when looking the profitability and cash flow development, our operating loss was of course resulted from the lower revenue on the quarter but also ramping up the next generation charging portfolio and U.S. operations and on top of that overall higher fixed cost compared to quarter 2 last year.

On top of that, our operating cash flow was impacted also by the increased inventory levels, and of course what is our priority for the fall and autumn on top of the of course, cost reduction is reduce our inventory level and through that release the capital employed and improve the cash flow for the H2.

This is a little bit more in details, our change in the net cash position in quarter 2, which was EUR 25.1 million, so really weak development. But you see clearly 3 factors there impacting on the negative gas flow.

First on the left-hand side, the EBIT EUR 9.5 million, negative changes in working capital EUR 7.6 million negative, and also the overall capital expenditures the investments around EUR 7 million. And like I mentioned that's why it's high priority what we will do now in H2 in reducing our cost levels and reducing the inventory levels in order to improve the profitability and also the cash flow.

And this is our new outlook for 2024. We gave a negative profit warning and also made a significant change in our revenue guidance and the profit guidance for this year. And that was driven by the weak market demand in connection to also the not able to close the orders as we expected, which was especially impacted at the end of the quarter 2.

On top of that, of course, the inventory levels continue to stay on exceptionally high level on our existing customer site. And based on that, our new revenue guidance for this year is between EUR 220 million up to EUR 260 million and when looking the operative EBIT margin the full year will be negative, but we will improve the profitability towards the end of the year, and we expect the quarter 4 to be in breakeven.

In connection to the top line development and with top line developer for this year, we accelerate the actions to improve the profitability and cash flow for this year. And that includes, the target to achieve EUR 10 million cost savings annually when we compare the cost level we had at the end of quarter 2 2024.

So that includes the change negotiations we have already started, which will include layoffs, both temporary layoffs and permanent layoffs and that relates to the autumn 2024. And the reduction will happen in person year and globally, and the estimate is that it's around 10% of the current resources.

And of course, the majority will focus on Finland, as we have most of the people in Finland. But that's not the only thing what we do. We also implement and have implemented the other profitability actions and that relates for example to all external spending we have group wide and that is something we do on top of the other actions.

And all these have the target to turn the Kempower business profitable until end of this year. And then our financial targets which we have confirmed, we will target revenue EUR 750 million in the medium term between years '26 and '28. And in the same time frame, we target the EBIT margin between 10% up to 15% and in the long-term, more than 15% operative EBIT margin. Thank you.

P
Paula Savonen
executive

Thank you, Tomi. Thank you, Jukka. And now we go to the questions and answers. And thank you for all the questions you have sent over. We have many, so let's start.

The first question is about the next-generation charger portfolio. Please explain, the delays, if any, in making the next-generation charger portfolio fully available to the market. What's your current inventory made of old versus new generation portfolio? How much has been produced or order anticipation? Let's take the first question first, because this was a long one. Please explain the delays, if any, in making the next-generation charger portfolio fully available to the markets.

T
Tomi Ristimäki
executive

I think the ramp-up is proceeding quite well. Small hiccups in there, of course, that there was some effect to the revenue of Q2. Not a huge impact, but there is small things, of course, when you're ramping up completely new power electronics. And this is definitely something that can affect. But I think in overall, when I look at the rollout and the ramp up of the production is going well. And if I look at my own vision on this, that this is all going actually better than expected in the worst scenario. So it's going really kind of positively forward.

P
Paula Savonen
executive

Proceeding.

T
Tomi Ristimäki
executive

Yes.

P
Paula Savonen
executive

And the second part of the question was about the current inventory made of old versus new generation. Can we comment of the share?

T
Tomi Ristimäki
executive

I think it's something that we can comment on actually the inventory write-down was related to the generation and we don't expect material new ones coming in when we look at the future. So there is something when you look at the total inventories, of course, this is related to the original target of the year, and going into that direction, and of course in a different market situation, we need to correct that.

P
Paula Savonen
executive

Thanks, Tomi. Next question is about markets in general. What is your current assessment of the markets and how reliably can the markets be evaluated in this situation?

T
Tomi Ristimäki
executive

I think the market in itself and looking at the data we analyzed on, let's say, charges installed in the first half of 2024 and first half of 2023 and when you see 20% growth in Europe, 40% growth in the U.S., the market itself is actually growing. Now, it's the situation that we don't see the growth in sales, because a large proportion of this installed base is actually coming from the stocks, which in a way is positive because we see that the stock is declining faster when the installations are growing, but of course, painful situation to be in this value chain position at this point of time.

P
Paula Savonen
executive

Thanks, Tomi. Next question is about the factory investments. Do you feel that factory investments and expansion efforts have been too rapid?

T
Tomi Ristimäki
executive

I think it's the factory investments are meant for the medium-term and long-term and our financial target on the long-term needs the capacity we have done. So definitely, if we see the effect on the cash flow, we see some effect of course on the actual CapEx investment. But actually, our factory investments are quite CapEx like. And the flexibility being able to now do and what we must do with the workforce, which is the majority of the running cost of the production facilities, is something that we can comply.

But also looking at the investment in our factories. If we make the investment, it's not a one-time thing. And we don't own the buildings. We have basically the lease. We have certain equipment production lines. And this is a scalable thing that will be done when the demand is there. So it's improving and improving. That's what we have been doing all the time. So in the current situation, of course, we are not doing that at the moment. And making the efficiency of the factory even better with future investments.

So certain things are done, but it's actually the full investment is longer than a single start in a factory. And definitely, the U.S. factory is something that we see a key figure for the future growth.

P
Paula Savonen
executive

Thanks. Next question is about the orders. You mentioned that you have not been able to close enough orders from new clients. Do you expect this to change? How big potential do the new signed customers have?

T
Tomi Ristimäki
executive

I think in total, we cannot promise on top of the customers, but I say that, the list is what we consider the customers with significant potential. And comparing the figure of last year, having customers buying more than EUR 2 million is actually this number of 32 new customers is definitely a very positive news in there. And this is part of our what we communicate in the beginning of the year that we have to get better in new customer acquisition that this is exactly what we are doing. And now supporting the customers to get faster forward is definitely a key topic for the -- let's say next 6 months.

P
Paula Savonen
executive

Thanks. Over to financials. Do you anticipate a break even in the fourth quarter of 2024 or before the end of the year?

J
Jukka Kainulainen
executive

Like we guided in regarding the profitability, it's in quarter 4.

P
Paula Savonen
executive

Thanks Jukka. Let's continue. Should we expect further inventory write down giving the new charger generation?

J
Jukka Kainulainen
executive

So we every month, of course, estimate our inventory and its value and that it's worthwhile and we do the across accordingly and that's what we did in quarter 2 and that's why we did the write-down. So that's reflecting the current situation, of course.

P
Paula Savonen
executive

Thanks, Jukka. And then about the inventories can we comment how long will it take to customers sales? This EUR 100 million of excess inventories, how long will it take maybe to you know?

J
Jukka Kainulainen
executive

Yes. Like we have commented that we expect the situation to prevail until end of this year.

P
Paula Savonen
executive

Yes, thanks Jukka. Let's continue with the financials. What gives you confidence in earning a double-digit EBIT margin in the medium? Given the wider auto supplier universe struggling to earn above a 5% EBIT margin?

T
Tomi Ristimäki
executive

Yes. Automotive industry and industrial goods is a little bit different market. We are talking about huge mass market and then we are looking at the specialized small volume market, which DC charging market will always, if you look at hundreds of millions of units and you are looking at thousands of units, this is a different kind of market.

P
Paula Savonen
executive

So cannot compare?

T
Tomi Ristimäki
executive

No, you cannot compare these 2.

P
Paula Savonen
executive

Thanks, Tomi. Could you give more color on the background for giving this massive profit warning? You had already discussed about customer inventory levels and grid connection problems earlier. So what actually was the big surprise on the second quarter? Was it more related to customers changing communication or assumptions in your internal estimates? How do you think about your demand visibility going forward? Two questions. The first was about the background of the profit warning.

J
Jukka Kainulainen
executive

So there were 2 factors. Another was of course this continued high inventory levels which didn't go down as we expected. Another thing was what we commented also that we didn't succeed to close the orders as we expected during the quarter 2 and especially at the end of the quarter and how our kind of -- and quarterly order intake is developing that always the last month of the quarter is the strongest month for us. And the actually our last month during the quarter 2 was a was a quite a weak, unfortunately. So those were the main factor behind the reasons that we had to give the profit warning and also sizable profit warning.

T
Tomi Ristimäki
executive

I think it's good to give a practical example like looking back like 4 or 5 quarters of us. It's even 70%, typically 50% of the orders is back to the last month of the quarter. And this is actually reasonable to expect that this continues and also looking at the forecast what we were looking at the real customer cases. This was actually the timing, but it's also the size of the profit warning that we have to look at the last 2 quarters and the behavior of the customer and the speed of the market. And look at the end of the year with the same glasses as the first 2 quarters.

So looking at the behavior will stay the same with assumptions. Of course, it's an assumption, but it is based on the short-term history that the behavior will stay the same. And this was the basically the sizeable reduction.

P
Paula Savonen
executive

Thanks. Then there was still another question about the demand visibility. How do you think about your demand visibility now going forward?

T
Tomi Ristimäki
executive

I think it's something that we could comment about what's happening in the DC charging market installations, which the market from that perspective is growing. We are looking at the new customer base. We are looking at our sales pipeline. So, we look at something that we cannot promise anything now in this market situation, but it looks in a way, at least in the mid-term, when we're looking at the positive growth.

The demand of electric vehicle charging has not changed in a way that we have too little infrastructure compared to already existing vehicles. Vehicle amounts are growing and basically we see the growth figures there. And in the long-term today it's the only viable option actually to cut the emissions of Europe and the commitments the countries have done. 20% of the emissions is coming from transportation and today the only viable option to cut the emissions down is the electrification.

P
Paula Savonen
executive

Thanks, Tomi. Let's take a question on the current capital structure. So, is the current capital structure satisfactory or are you expecting changes in the near future?

J
Jukka Kainulainen
executive

Yes, good question. We had around EUR 59 million liquid funds at the end of the quarter 2. And also, we have this revolving credit facility at the moment. So I think that's quite healthy and we have quite a good financing situation overall.

P
Paula Savonen
executive

Thanks, Jukka. Let's go to the product portfolio and how competitive you see Kempower's product portfolio. How do you estimate Kempower's product portfolio's competitiveness in terms of quality or price during the next year?

T
Tomi Ristimäki
executive

Very wide question. I think, we have differentiated our product portfolio to actually this is one of the main things to avoid -- heavy price competition. Of course, with the now short-term smaller market you will have heavier price competition because this is actually an effect that affects the whole charging industry at the moment, I mean, the charging manufacturers.

So I think our reputation is good, we have been a very reliable supplier from the point of view of deliveries and the product performance. So, definitely, I think we have the means to do it as we see in the market.

P
Paula Savonen
executive

Thanks, Tomi. Then there is a question about market share. Can you comment on the market share? How do you see Kempower's market share to develop during the next year?

T
Tomi Ristimäki
executive

Definitely our goal is to grow our market share. There is some analyst estimations we don't comment on market share, but you can find it actually there in the estimates, especially from last year.

P
Paula Savonen
executive

I know that we have been already running for 45 minutes, but there are so many good questions that I will take a couple of more. Yes. How big is this issue with customers waiting for your next-generation products? And was there something unsuccessful with the new product launch or production rollout?

T
Tomi Ristimäki
executive

I think it is also part of that some customers are qualifying the new product and it's a combination. And like Jukka mentioned that there was some small delays in the full ramp up, but actually this whole process is according to the plan. So, no significant changes on that.

P
Paula Savonen
executive

Thanks, Tomi. Let's take a question on the gross margin. Your gross margin showed a decline of some 5 percentage points compared to the first quarter despite higher revenue. Could you walk us through the drivers behind this?

J
Jukka Kainulainen
executive

Yes, this is a good question. Yes that's true when you look at the gross margin 44% level, but that included the inventory write-down of EUR 2.4 million, so if you exclude that we were on 49% which is actually quite healthy level. So there hasn't been any changes in the pricing level for example. So that has stayed on the good level as well. So it's due to this inventory write-down, it went down now in quarter 2 and H1, but if you exclude that write-down, it's a on healthy level as you see.

P
Paula Savonen
executive

Thanks Jukka. Couple of questions still. Your cost saving target, your cost savings target especially in Finland, what does that indicate regarding Lahti expansion? Will you still do it this year and what it indicates regarding U.S.? Let's take Lahti first.

T
Tomi Ristimäki
executive

I think it's the factory itself, like I said, it's a medium-term investment and having the production lines in there. But of course, the part of the investment, which is on basically the full-time employee numbers, this will be lower than looking at that. But the factory investment itself, we have the factory already partly operational. So this is no big impact there. And the major things have been done.

U.S. investment also, we have operations ongoing. And like mentioned, our way of investing is actually based on demand. So, improving the factories on the run. So it's a continuous improvement process what we do for the production.

P
Paula Savonen
executive

Thanks, Tomi. Two more questions. Are other profitability measures such as curbing external resource spending included or in addition to the EUR 10 million of internal savings?

J
Jukka Kainulainen
executive

Yes. So EUR 10 million is something we will target. And then there are those different actions we mentioned there below. So EUR 10 million is altogether what we target as an annual saving.

P
Paula Savonen
executive

Thanks Jukka. And the final question for today. What makes Kempower's product better than the competitor's product.

T
Tomi Ristimäki
executive

I addressed this a bit already, but I think in the majority of the competitors are focusing charging a single vehicle. And we are focusing on moving the whole transportation fleets. And this generates actually and has generated the interest in our product, and us keeping our market position this year as well looking at the figures is showing the same direction. So remaining competitive on this side, and also the new -- releasing, keep releasing actually the new products to the market will keep us in a very interesting position.

P
Paula Savonen
executive

Thanks Tomi. Thanks, Jukka.

T
Tomi Ristimäki
executive

Thank you.

P
Paula Savonen
executive

And thank you all for joining and for the good questions. And if there are some questions that we will not have time to answer today, we will gather those and publish on the investor pages later on.

Before you go, we want to present you a bus depot in northern Italy, Bologna. Thank you for joining and have a great summer.

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