CTEK AB (publ)

STO:CTEK

Earnings Call Transcript 2022-Q3

[Jon Lind, executive]

Good morning. Jon Lind, the CEO of CTEK and I'll take you through the interim report for Q3. And with that said, I think we can go to the next slide. So I'd like to also take the opportunity now to introduce our new CFO, Thom Mathisen. I hand over to you to present yourself.

[Thom Mathisen, executive]

Yes, some short words. So I'm happy to have joined the CTEK 2 months ago. Interesting company and full of inspiration going forward. My background, I have many years at ABB, in total 17 years there, 8 years in the steel business in SSAB and the last 3 years before coming to CTEK, I was in a private equity-owned company, Dellner [indiscernible]. But now happy to be part of the CTEK company.

[Jon Lind, executive]

Thank you, Thom. And then we can go to the next page. And I think many of you have already listened to us and knows, but if we have new people onboard here, I would like to give a little bit of -- a little about the structure in -- within CTEK. And important to take with you is that we have the 2 technologies that we call the EVSE and Low Voltage. And this year we celebrate 25 years and it was 25 years since we started with the Low Voltage technology. And the Low Voltage side has a number of different use cases and segments and has been developed over the -- just the last 25 years.

And as you see in this picture, we are serving the consumer side. And we have also the other part that is very important, the professional side. When you leave your car for service, for example, this is one of the most important things they do. They hook up a charger and make sure that the battery is having the right level of charge, so they can do uploading of new softwares and so on.

We have also introduced last year a portable charger in the Low Voltage segment that has a number of different features and it's also designed so you can hook up our solar panels. So you are totally free from grid and can charge your car. You can also sort of jump start your car with it and you can also [indiscernible] like phones, computers and so on. So it's a new segment for us that we are moving into.

And then we have the integrated solutions side where CTEK Low Voltage chargers are onboard in different type of vehicles and serving both the starting battery, but mainly in many applications, service battery that is handling other type of consumers onboard.

On the EVSE side, we are selective where we are playing and in this picture we are showing 3 different areas, the home charging, destination charging and portable EV chargers. We have not been focused on home chargers. We have thousands of chargers, our chargers in the homes. And -- but the main focus area for us has been the destination chargers and that will also be main area for us going forward in the core markets. Here we're talking about charges that you find in public parking spots, shopping malls, other commercial buildings and so on where you have multiple number of charging points installed. And here we are serving -- we are delivering the hardware, the software, the total backend with load balancing and so on.

Portable charger is a niche, you can say. And -- but we launched a new product to the market last year. We had some problems during this year with the production side based on shortage of components and had to both redesign to get access to the right components and also re-certificate. This is a super interesting area because this charger is 11 kilowatt which you can compare to a charger and also destination charger. But you should compare to a home charger in this case. And it's flexible in that way that you can hook it up to any type of re-phase power outlet. And you have also the possibility to control it through Bluetooth and Wi-Fi. It's both portable, smart and powerful. So this described on a high level, there are 2 technologies and some segments within the different technologies.

That said, we can go to the next page and describe a little bit of the organization and how we go to market. And if you take a look at the mid left to this picture, you have the divisions. And this is also how we report this company. We have from -- we start from the bottom there, we have the OE division, Original Equipment division. We started about 20 years ago to deliver tailor-made products in the low-voltage range towards the premium car manufacturers. And we have continued to build on that -- those platforms and been increasing that part and we continue to develop the low-voltage products for the automotive manufacturers as that is the majority of the customers in this division. But we have also now started a journey in the EV segment, what we call the EVSE, the Electrical Vehicle Supply Equipment.

And we have been talking about General Motors as a project that we have been running now for years, and we'll start to deliver on first one -- first units there. I'll come back to that later in the presentation. So through the OE division we have the Low Voltage, but now it happen with also the EVSE products forward.

The aftermarket side is distribution setup to serve mainly the end customers, and we do that through distributors, online channels and so on and we reach about 70 countries with that setup today. The main part has been and still is the low-voltage technology products related to that. But we have now started also the NJORD GO -- and distribute NJORD GO mainly in the Nordics, but also now we will also roll that out into new markets going forward.

The Energy and Facility division, that is the vision that target customers that is in one way or another install, operate, complete the charging infrastructure, mainly then related to the destination charging. And as you can see here on the list, you find everything, everyone -- every type of customer from charge point operators to electrical wholesalers, installers, property owners, parking owners, et cetera. So that is the 2 -- 3 different divisions that target different type of customer groups. And we are -- we have the structure, so we can distribute EVSE products through all these 3 divisions.

We have now year-to-date 24% of the revenue still comes from EVSE and 76% come from Low Voltage. So I think that framed the way we go to the market and the split between the different technologies.

Next. Some numbers then that relates to year-to-date numbers. We have already talked about the technology, 24% on the EVSE and 76% on Low Voltage. If you look at the divisions now, we have 63% comes from aftermarket and then we have growing Energy and Facility and then growing OE here. That is how it turns out now of quarters here in the 2. If you look at the different markets, and now it turns out from revenue streaming, those we have -- if we put Central Europe and rest of Europe in together, that amount close to 50% -- market and that is the [Technical Difficulty] see the rest there. So with that said, I think we move to the next.

I hand over to you, Thom, here.

[Thom Mathisen, executive]

Yes. So then some numbers for the Q3 quarter. So as you can see, our net sales is slightly below last year if we take out the currency impact, but we continue to increase the delivery of Electric Vehicle Supply Equipment. So it's now up to 27% compared to 20% last year same quarter. We have managed to stabilize the gross margin on 50%, slight plus level. But our adjusted EBITDA is going down compared to last year same quarter. And that is due to changed product mix, less share of the market. And also the cost level we have to do continuous investment in both markets and products. We have a one-off item in the third quarter related to smaller restructuring of supply chain of SEK 5 million that is part of the adjusted EBITDA we present here.

So with that, I give you also some comments by division and starting with the aftermarket division. We can see that we have adjusted for currency. We have a reduction of around 15% this quarter. And that is related to the less purchasing power from our end users. As we have said also before, we have however managed to keep the margin on actually higher levels than before. That comes both from price increases that we conducted during quarter 2 and also from lower share of air freights than the same quarter last year. So stable margins, even if lower volumes or increased margins even if lower volumes.

If I then continue with the OE division, we have a quite sharp increase in the organic growth, about 70%, and that comes both from generally high demand, primarily in the EVSE segment. And we have also now during quarter 3 delivered the first units of the base variant for Ultium charges to GM. The EBITDA level has shrunk to around 10%, slightly below 11% compared to last year's 19%. And that is, again, due to product mix and also the continuous investments we have had in development of new products.

Finally we have the Energy and Facilities division. As Jon mentioned in the beginning, we have -- we continue to grow in this division. So we have an organic growth of 15% for this quarter. And in our core markets at the Sweden and U.K., it continues to be a good and high demand. EBITDA still negative and that is of known factors, we still increase cost for growing markets, entering into new markets and new product launches. So we basically need more volumes to cover this -- that cost level we have. Come back to that a little bit later.

So having said this around the divisions, I go also to the cash flow and CapEx that all of you can see is a challenge for us for the moment with a quite high net debt ratio of 4.5x. And that comes from 2 factors: First, the lower profitability in the recent quarters. As we mentioned before, it's due to the higher investments in markets and products and that actually drives up our OpEx level. So we have to work with that. And the second thing is, of course, the higher net working capital that is eating up some cash. And the high net working capital relates to, as we -- as presented before, that we have had to build up inventories to secure deliveries during the shortage of components, but also now in the ramp up phase for the GM chargers.

So as we state on this slide, robust actions are initiated both to reduce the cost base, but also to improve the balance sheet row by row.

So with that said, I hand over to you, for the strategy on current trading.

[Jon Lind, executive]

Thank you, Thom. Yes. So I'm back to give some color on the partnership with General Motors here. As we said, we have started to deliver the first base units now, and we are preparing for increasing the volume. Of course we are also in preparation to launch an additional product model beginning of 2023. And here it's clear that we have -- this is a big developing project, and it has involved many consultants, and that has taken place over the last 2 years.

And now we are in the final phase and will scale down these work streams and the costs related to that forward. If you look at the focus side, we have always said that we try to focus as much as possible and be selective.

And within Energy and Facility, we have said that in the coming quarters, we will focus on markets that we already have established network and relationships instead of going for new markets at this point. And it will be an extra focus on the core markets that was mentioned before; Sweden and U.K., short-term.

Coming back to aftermarket and challenges there, we continue to see a micro-environment that slowed down the consumer side, you could say, and the buying power is weaker overall in the world on that segment. We believe that we will see this at least until end of the year that we have a little bit slower pace on it. But like Thom said, we have a stable gross margin in that segment. We are happy to be up in full production now with the NJORD GO, the portable EV charger that is also distributed in the aftermarket side, but also in our Energy and Facility, but is an important part for the aftermarket with the distribution network we have in place there. And we are now launching this product into other markets.

Based on the net debt ratio and the need of reduced debt, we are seeing a quite interesting landscape out there. And we see partnerships as a focus area for us. There can be collaborations on different hardware platforms, softwares, partnerships in markets and so on. And now I'm talking around the EVSE segment. And we will go this way and see by that also [indiscernible] reduction in development costs connected to this strategy. We see also necessary to adapt our personnel levels to the market situations. And all in all, this means that we are further concentrating our operations and future product portfolio to reinforce our position in selected areas.

We have also looked into the future a little bit, the next quarter. And we see that what we know right now, we believe that the net sales for the fourth quarter will be in line with the third quarter this year, but with slightly lower margins driven by such factors as changed product mix. Or if we just summarize the position of CTEK and how we look at the industry, the long-term growth potential in our industry is clear, it's strong, and it's driven by the growing global car park and more advanced electronics and the electrification of the vehicle fleet.

So I think that summarize the Q3 reporting from our side. We are happy to take questions on this one.

[Thom Mathisen, executive]

So far no questions coming in on the web. We have now here -- now we have a question from Kenneth from Carnegie. With the quarter 4 guidance provided, there is a risk that the net debt-to-EBITDA may go even higher in quarter 4. Are the banks okay with this? How is CTEK affected by the interest rates, cost-cutting program?

So I can take that question. As you can see in the report, we have done a renegotiation of our bank agreement. So we believe we are in a good shape. We have the margins we should have. There is, for quarter 4, of course, a risk that the net debt continue to rise a bit. But we also see when we're going forward for 2023 that we will gradually go down to more normal levels. And as Jon said, cost-cutting program, we are in that phase right now, both looking over the cost base, but also looking over our balance sheet where we can do a lot of things in the net working capital to improve the situations further. And our relations with the bank is really good. So good discussions on this. So nothing more to comment on that.

We also have questions from Johan at Kepler. How is the pipeline looking for similar partnerships like GM?

So Jon, I hand it over to you.

[Jon Lind, executive]

Yes. Thank you. Yes, we have continuous discussions with existing customers we have in the Low Voltage, but also then on the EVSE side. But it's something we talk about right now where we are and so on, but this is a part of the strategy, and we continue in that direction.

And Thom, on this question.

[Thom Mathisen, executive]

All right. Now no more questions from the audience. Another one from Kenneth at Carnegie. What is the outlook for aftermarket? Do you see any trends during the quarter? Is it only the online channel that is weak? Or are other channels also weak?

So Jon?

[Jon Lind, executive]

Yes. Talking about trends, I don't see a special trend in Q3 compared to the other quarters in any way. I see a general lower buying power. And I think it's a good question you put there. Is there anything -- do we see any pattern between online channels and more traditional retail side? We don't. It's a mix in different markets and in different customer groups. So we don't have a clear trend at one or the other going down or up. And I think what we see out there is also that the retail side is very ambitious and aggressive, you could say, and are creative to create revenue streams now when the situation is like that and so on. It's a mix. So it's not a clear trend in any direction there that where they are buying. All right.

[Thom Mathisen, executive]

So it seems like no further questions has come in. So I think we by this -- end this session and thank you for listening.

[Jon Lind, executive]

Thank you so much.