CTEK AB (publ)

STO:CTEK

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to the CTEK Conference Call Q1 2024. [Operator Instructions] Now I will hand the conference over to the interim CEO, Henrik Fagrenius; and CFO, Thom Mathisen. Please go ahead.

[Henrik Fagrenius, executive]

Thank you, operator, and good morning, everyone, and welcome to the presentation of CTEK Q1 interim report. And the presenter today will be myself, Henrik Fagrenius; and CFO, Thom Mathisen. So let's start. Before we dig into the figures, spend some time with our history. CTEK was founded 25 years ago by the inventor, Bengt Wahlqvist. He invented the world's first smart battery charger. And ever since development has been core for CTEK. All design and development are done in Sweden. We are producing by our production partners in Asia, China and we have our own personnel in place in China for more than 20 years to secure quality and production. If CTEK is then consisting of 2 main technologies, the EVSE which is charger for electric vehicles, where we have 3 different areas.

One is destination charging. One is mobile charging and the last one is client brand charging. When we have our low-voltage segment, that is 12 to 24-volt chargers, and we have 4 different areas: Consumer, Professional, which is the workshops, Client Brand, where we have had among Porsche as a customer since 2003, and we have other numbers, high-end car manufacturers and then we have Integrated Solutions. So that's 4 areas for our low-voltage business. We are going to market with 2 different divisions. One is the professional division that is selling to big parking operators, our destination charging and also selling our client brand low voltage to the OEMs.

In the Consumer division, we are selling mainly our low voltage but also our mobile EVSE and there, we're selling for different channels like retail and e-tail and crew importers in some countries. But let's dig into the numbers for Q1. It was a solid quarter. The net revenue -- net sales ended up SEK 201 million. Gross margin ended up 54%, almost 10% higher than comparing quarter. Adjusted EBITDA, SEK 19 million, which is a 9.7 percentage also up 6.7 percentage points since the comparing quarter. Good stable cash flow of SEK 45 million. The share of EVSE fell to 17% and our net debt ratio fell to 2.2x.

The key takeaways from the quarter is, of course, continuously good cash flow and increased profitability. We can see that our activities are working. We have a stable cost base. We are improving -- both gross margin and adjusted EBITDA margin. We have a stable cash flow, and we are working to reduce the net working capital. We have also had a very strong Low Voltage sales. This is the third consecutive quarter where we see a growth in that division. This quarter, we grow with 11 percentage points and we see positive trends in Sweden and DACH region.

What is reducing our net sales is significantly lower EVSE volumes, especially in North America for our customer there. It was remarkable lower sales. We have also quite a strong comparing quarter to compare with but we see a positive trend in the overall EVSE sales in the Nordic. And as we mentioned last time, we are now also introducing our new Chargestorm connected free, which will open up more markets for us by the end of the year. So I would say that we have bottomed out the EVSE and see a growing trend in that segment as well. For some more details, I leave the word to you, Thom?

[Thom Mathisen, executive]

Yes. So I'll dig a little bit more into the financials. This first quite crowded slide, I highlight just a few items there. As Henrik mentioned, the decrease in the overall net sales is only related, I would say, to the EVSE here, particularly the customer we have in North America. I'll come back to that a little bit later. We have a strong increase in the gross margin, and that is, I would say, a mix effect from the higher Low Voltage sales. So we are 10 percentage points above last year same quarter.

On the adjusted EBITDA, again, the increase there is related both to the higher sales of high-margin products on the LV side, but also to the impact of the lower OpEx of our cost reduction programs from end of '22 and beginning of 2023. With that, I go to the divisions and the Consumer division. We continue to increase quarter-on-quarter, the sales to around 10% higher net sales compared to last quarter same time, stable margins on good levels. And we also can see that quarter-over-quarter, it is a positive trend both on margins and volumes. This division is, as you can see from the upper right-hand corner, 2/3 of our company. And as you see, predominantly Low Voltage sales, almost the full sale are from Low Voltage.

Coming then to the Professional division. If you start in the same end, this is then 1/3 of our company and it's around 50-50 between EVSE and Low Voltage products. Here, we can see the decrease quarter-over-quarter, we have almost 45% and that is, again, related to this North American EVSE customer. On the positive note, you can see from the graph on the lower side of the slide, that it's a sharp improvement from quarter 4 2023. Still, we are not happy with the margins. We will continue now foremost looking for higher volumes to come up to profitable levels in the Professional division.

Finally, on the financial highlights, cash flow and CapEx as at this really important for us to continue the good cash flow development. We have now operating cash flow positive of SEK 45 million. And after investments, it's still positive with SEK 26 million, which is SEK 50 million more than -- SEK 17 million, sorry, more than the same quarter last year. This good cash generation has made it possible for us to now also amortize on our loan with SEK 100 million in this quarter, which also will improve our cash flow going forward. And most importantly, these continue to pay down our net debt ratio from 2.7 at end of '23, down to 2.2. And on the graph on the lower side of the slide, you can see that we have now stabilized our CapEx development on the lower level than we had '22 beginning of 2023 as well. So if it would be 9% or 8% or 10%, you can always debate, we will always have quite high CapEx investing in new products and improved products but it should be on the level as we are right now.

With that, I hand over to Henrik.

[Henrik Fagrenius, executive]

Thank you, Thom. Looking then a little bit into the future. As we presented last quarter, we have divided our future journey into 3 phases, where the first phase is stability. We can now conclude that we have a cost base that is sound, and we are having a positive cash flow so we are leaving Phase 1 and entering into Phase 2, where the focus will be on profitability and also profitability through organical growth. So we are putting more efforts into growth -- into organical growth. And then we have a Phase 3 that is more accelerated growth with both geographical new geographical areas and also to look and investigate the M&A possibilities.

So what are the summary then of Q1? A solid quarter, continuously strong cash flow and increased profitability. We are continuing to reducing our net debt ratio. We see a continued growth for the third quarter now in Low Voltage sales. We see a significantly lower EVSE volumes for our North American customer, but we see positive trends for our EVSE segments in Nordic, and we will also open up new countries. I know there have been a lot of discussion about lower sales of EV vehicles, but there is also a growth in plug-in hybrids. And for CTEK as a company, it doesn't really matter if it's the sales of an EV car or if it's a plug-in hybrid, both need the charging infrastructure.

And we are leaving Phase 1 and entering in Phase 2 in our journey towards profitable growth.

With that, we open up for questions. Please, operator.

[Operator]

[Operator Instructions] The next question comes from Johan Eliason from Kepler Cheuvreux.

[Johan Eliason, analyst]

This is Johan at Kepler Cheuvreux. I have a few questions for you. Talking about Low Voltage business first, how would you say dealer inventories are right now at the end of the quarter? Are they highly low or normal for the season?

[Henrik Fagrenius, executive]

Thank you for your question. We can see that after having very high stock after that pandemic, I am now judging that they are more normalized stock levels at our dealers.

[Johan Eliason, analyst]

Good. So no, nothing to worry about when we go into the sort of summer season here in terms of sudden destocking also.

[Henrik Fagrenius, executive]

Not when it comes to stock, no, I don't see that.

[Johan Eliason, analyst]

Good. Just curious a little bit in the Consumer segment, there are very limited sales of EVSE. I guess it's the new order [ GO ] product. How is this product now developing when you have the load balancing as well? Are you seeing a positive trend there?

[Henrik Fagrenius, executive]

Yes. We see a positive trend from low numbers, but we see a positive trend. And personally, I think it's a fantastic product together with the load balancing. And we are making efforts to sell that even further.

[Johan Eliason, analyst]

Yes. And then you talked about still on EVSE here, Chargestorm 3 now with more countries available for you. What countries would that be sort of that you have...

[Henrik Fagrenius, executive]

We're first introducing it in Sweden as our home market and U.K. and then later on also a version for the German market.

[Johan Eliason, analyst]

Okay. And the current products you have today, I guess, is Chargestorm 2, is that sort of today only for Sweden and the U.K. or was Germany already there?

[Henrik Fagrenius, executive]

No, it's only for Sweden and limited segments in U.K.

[Johan Eliason, analyst]

Okay. Good. And then just a question, while we are on EVSE, you talked about North American customer volumes being down a lot in this quarter year-over-year. Is the contract sort of still valid? Is it more their rollout of their EV cars? Or what's the latest on that business?

[Henrik Fagrenius, executive]

The contract is still valid. We are still supplying one model for them, but I think it's more about their sell-out of EV cars, which you can find quite good figures on their home page. So it's a slow start, and we don't know much more about that development, but we still believe in the long-term trend of electrification and we have a good product for the North American market when it comes to 19.2 kilowatt charging.

[Johan Eliason, analyst]

Okay. Good. And then I noticed you talked about the positive trends EVSE in the Nordic. I guess that's the old traditional Chargestorm product but you were a bit more cautious in the Q4 call because of the bleak outlook for construction in the Nordics. Has anything changed here? Or...

[Henrik Fagrenius, executive]

We see a positive tendency. We see more projects restarting. We see more activity. It's still not huge numbers, but that needs -- it's a positive trend. And I believe that we have seen -- we have the worst behind us.

[Johan Eliason, analyst]

Okay. Good. And then just finally, a question for Thom, maybe. You talked about CapEx staying at current level. Did you refer to that as a percentage of sales or sort of in absolute terms, Swedish krona sort of?

[Thom Mathisen, executive]

More or less both, but maybe we look more for absolute numbers, but it's because that is really the cash impact. And then we try to balance that in a good level between Low Voltage and EVSE.

[Johan Eliason, analyst]

Good. And the net debt target you have, can you remind me of...

[Thom Mathisen, executive]

[indiscernible] and obviously, the lower, the more space we have for various things like CapEx or further down the road other possibilities.

[Operator]

The next question comes from Sofia Sörling from Carnegie.

[Sofia Sörling, analyst]

Sofia Sörling here from Carnegie. My first question is about the Consumer segment. So you mentioned you had a really strong sales growth within the Low Voltage segment and that also has a positive impact on margin. But would you say that the Q1 margin within this is quite inflated in Q1? Or would you say that this is more of a sustainable margin level within this segment?

[Henrik Fagrenius, executive]

Thank you for your question. We are thinking about this, we should be able to hold this level of margin.

[Sofia Sörling, analyst]

Okay. And would you say that it's extra boosted, the sales growth here in Q1 due to the cold weather or but this is quite unusual growth here due to the cold weather or -- yes, would you say that is more expected?

[Henrik Fagrenius, executive]

I think it's more expected. We have strengthened the consumer organization, and we are doing more activities. So I would say this is more of the corporate growth level.

[Sofia Sörling, analyst]

Okay. Great. And then if we go to the CC3 product, have you started selling this in Sweden? And can you say something about the demand already for this product and current trading, if you give some details on how it has been, yes, the market view this product basically.

[Henrik Fagrenius, executive]

We haven't started yet. It's in pre-production. We will start [indiscernible]. We have seen great interest from our existing customers and new customers for this product. So we are positive going forward.

[Sofia Sörling, analyst]

All right. So -- but in Sweden, you will launch it then in end of May or in June?

[Henrik Fagrenius, executive]

Something like that. Q2 and Q2, I would say.

[Sofia Sörling, analyst]

All right. Yes. And then I would say, I have a question also about the EBITDA margin for the Professional segment. So you mentioned that it has improved quite quarter-by-quarter, it has a sharp improvement here, as you can see. But what would you expect when will this reach breakeven? And what would you expect to be a more normalized EBITDA margin for the Professional segment or division?

[Henrik Fagrenius, executive]

I think what we see now in this quarter is the effect of the changes in the organization we did last year. So we have reduced the cost base in that division and now it's more about holding volume into the EVSE. And we are not revealing any goals for EBITDA levels. But it should definitely not be [ months ] of that margin.

[Sofia Sörling, analyst]

Yes. Okay. And regarding the adjusted cost base, it seems now or should we interpret that this is stabilized now, and you do not expect to make any further cost-saving implementation at all?

[Thom Mathisen, executive]

No. We can say that we think we have done what we should in the things we launched at the beginning of 2023 because it did stabilized on the level and the volumes we are looking for.

[Sofia Sörling, analyst]

Okay. Great. And let's see if I had a final question here. Yes. And also within the EVSE market in the Nordics, as you saw some more positive trends. Is there any difference between the different countries? And also, if you could give some more details, how do you view competition at this moment? Is it [ value fees ]? Is it price pressure? Yes, how do you view it?

[Henrik Fagrenius, executive]

If we take the Swedish market, which is our biggest market. We see, of course, that there are a decline in new registrations of EV cars, but that is contracted by supplier or an increase in the registration of plug-in hybrids. So if you look at Q1 in Sweden, I think chargeable personnel costs of 54.6% of the new registration. So it's still a majority of the new cars registered that needs charging into [indiscernible].

If we look at the competition, it is a fierce competition in the home charging segment but that's not our focus. We are focusing on the destination charge. And there, we are dealing with B2B customers that are appreciating our robust solution and our load balancing system and its various competition everywhere, but I would say that we are keeping up back.

[Operator]

The next question comes from Johan Eliason from Kepler Cheuvreux.

[Johan Eliason, analyst]

I just had in mind a question regarding this minor impairment you had in the quarter or charge, you call it. Was that an inventory impairment that impacted cash flow in the quarter? Or what was that?

[Henrik Fagrenius, executive]

It was rightly said it was impairment in the inventories related to the EVSE business and to be specific for the North American customers.

[Operator]

There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.

[Henrik Fagrenius, executive]

Thank you very much for joining our call. And if you have further questions later today or later in the quarter, don't hesitate to reach out. Thank you so much, and have a good day.

[Thom Mathisen, executive]

Thank you.