Garo AB

STO:GARO

Earnings Call Transcript 2019-Q1

[Operator]

Ladies and gentlemen, welcome to the GARO Q1 Results 2019 Conference Call. My name is Jordan, and I'll be coordinating your call today. [Operator Instructions]I will hand now over to your host, President and CEO Patrik Andersson. Patrik, please go ahead.

[Patrik Andersson, Marketing Manager & Temporary CEO]

Thank you. Hi, everyone, and welcome to GARO's Presentation of the First Quarter 2019. My name is Patrik Andersson. And I have, today, been appointed new President and CEO for GARO. I have been acting CEO of the group since middle of February this year. I joined the company in 2007, and since 2015, I have been sales and marketing director for the group and also a member in the management team in Sweden. I have also been a member of Group Management team since 2016. With me today, I have GARO's CFO, Helena Claesson.Next slide, please. I will start with a short introduction of the company. GARO develops and manufactures innovative products and turnkey solutions for the electrical installation markets. We have 2 business areas. It's Sweden and other markets, and we have operations in the Nordic countries and also in Ireland and Poland. We have production sites in Gnosjö and Värnamo in Sweden and also in Szczecin in Poland. We have -- there we have invested a lot of capacity the last years. Our headquarter is based in Gnosjö in Sweden, and we are approximately 400 people total in the group.Next slide, some operational highlights. GARO's products area E-mobility continued to have a strong growth in the markets in the quarter's. We can see an increase in demand in all countries and of all charging products. During the quarter, several of our major projects was finalized, and we also got follow-up orders from multiple customers. We could also see that our delivery capacity reached stable levels.Our business area other markets had a strong development in the quarter, especially as a result of good development in E-mobility and also in electrical distribution. We also have invested in higher market presence. We have strength (sic) [ strengthened ] our sales organization with several recruitments in the quarter, and we have participated in several industrial fairs. The fairs was placed in the Nordic countries and also in Northern Europe, which is in line with our strategy to grow in these regions.Next slide, please. Then we come to our product areas. This slide shows our product areas' shares of the total sales in the quarter. As we can see, the largest product area is Electrical distribution products, which contributes to almost half of our revenues. And as from quarter 1 this year, E-mobility is now the size being our second largest product area with 23% of the turnover in the quarter. Looking at the numbers of comparing with 2018, it seems as Project business is losing market share. This is not the case. We are on the same levels as quarter 1 last year and the same goes also for temporary power.Now over to Helena for some comments about our financial performance. Next slide, please.

[Helena Claesson, Chief Financial Officer]

Thank you, Patrik. Then some the financial highlights. Net sales in the quarter amounted to approximately SEK 248 million which is 20% up compared with the same period of 2018. It should be noted that the first quarter last year was weak in Electrical distribution products, very much because of the harsh winter which came in late in the season. The growth in sales all came from organic growth and to a large extent driven by E-mobility.EBIT amounted to approximately SEK 29 million, giving us a margin of 11.7%, to be compared with 12.1% in 2018. However, during this quarter, SEK 4 million has been taken as a provision for severance payment to the former CEO. EBIT margin excluding this provision was 13.5%. The strong results is an effect of scale benefits from higher volumes and efficient cost control. Next slide, please.Looking at net sales and EBIT developments over time, you can see that from Q2 2017 and going forward, we can see some volatility in between the quarters, but the rolling 12 months shows a good trend of growth over time in both sales and operating profits. The volatility in between the quarters reflects and [ gives a theme ] of the seasonal changes in the business of GARO where we normally had a strong Q4 and a weaker Q3 and sometimes also Q2 due to summer and less working days in those periods.Next slide, please. As Patrik mentioned earlier, the business of GARO is divided into 2 segments, segment Sweden and segment other markets. And here you can see the split of sales both between product area and segments.In Electrical distribution products, we had a growth of 12% in Sweden and 19% in other markets. Again for the Swedish part, same period last year Q1 were a bit weaker due to the cold winter. Temporary power and Project business have been stable when comparing with the same period last year. And EBIT -- and E-mobility grew with 109% in the segment Sweden and 61% in other markets, giving a total growth in Q1 of 89% compared to the same quarter last year.Next [indiscernible] please. Now looking at GARO Sweden. The underlying market in which GARO operates grew with approximately 5% during the first quarter of 2019. For GARO, the net sales of segment Sweden amounted to SEK 163 million, which is a growth of 18% compared to the same quarter 2018. Please note that the comparable figures, again, last year were a little bit weaker due to -- within Electrical distribution products, again due to the late and cold winter. The highest growth is to be seen in E-mobility, now being our second largest product area within the group.EBIT amounted to SEK 16.3 million and gave us the margin of 10%, which is a decrease with 5% compared to Q1 in 2018. However, the provision for the former CEO of SEK 4 million was all taken in this segment, Sweden. So excluding this provision, the margin for the quarter was 12.5%.Next slide, please. In our segment other markets, net sales amounted to SEK 85 million, which compared to approximately SEK 68 million in Q1 last year is an increase of 24%. Also in this segment, growth was to a large extent driven by E-mobility, although from lower volumes compared to segment Sweden. Operating profit increased by 70% to SEK 12.9 million, which gave us a margin of 15.1% for the quarter. The improved operating margin follows the strong growth in sales volumes in the quarter.Next slide, please, looking at cash flow and balance numbers. Cash flow from the operating activity came out a bit lower than the same quarter 2018 and amounted to SEK 9.2 million, to be compared with SEK 10.7 million in 2018. Cash flow from investing activities was SEK 6.6 million, of which approximately SEK 2.5 million was related to products development.Net working capital has increased over the last quarter's and amounted to almost SEK 205 million, to be compared with SEK 170 million in Q1 of 2018 and SEK 185 million in the end of last year, 2018. The majority of this is due to higher stock values to match an increased demand within E-mobility, in combination with ramping up of production.And now back to you, Patrik. Next slide, please.

[Patrik Andersson, Marketing Manager & Temporary CEO]

Thank you, Helena. Strong growth and development opportunities. Our strategy here remains the same. The main driver of the growth will be organic growth. A successful product development has been and will be the key to this growth. On top of this, we're always looking for potential acquisitions where we can add or [ even new ] additional products and product areas, all companies with some special edges as our acquisitions of WEB-EL in 2017. This can also be additions of Nordic electrical companies in order to strength our market positions, such as acquisition of the Emedius in 2017. We are also looking at new geographic markets, which are focused mainly on the north part of Europe.Next slide, please, the last slide, for outlook. Demand for construction-related products in Sweden is still good, but a slowdown is expected in 2019. However, the renovation sector has been deemed stable. The trend in other markets served by GARO is expected to remain favorable. We see a strong trend for the E-mobility product area, with continued expansion of charging infrastructure in all markets.All in all, GARO has a positive view of the market condition, mainly driven by the continued expansion of charging infrastructure.Thank you, everyone, for listening, and we are ready for questions.

[Operator]

[Operator Instructions] We now have a question from Oskar Vikström from ABG.

[Oskar Vikström, Analyst]

And first, let me congratulate you on a nice quarter. I just have a couple of questions. Firstly, just one thing on growth. You mentioned here that the electrical distribution comparables were quite easy, but has there also been any sort of Easter effects that you have seen in the market?

[Helena Claesson, Chief Financial Officer]

Easter effect...

[Oskar Vikström, Analyst]

Yes. So the Easter falling into Q2, as opposed to Q1 last year, so less working days.

[Patrik Andersson, Marketing Manager & Temporary CEO]

No. We can't see that.

[Oskar Vikström, Analyst]

Okay. And all right. So following up on that. So if you look at the EBIT margin, it was really strong. And you mentioned here that it's both the high volume growth as well as efficient cost control. Would it be possible to get an understanding of how much of each here? Is it mainly volumes? And to what degree has the cost control paid benefit to the margin?

[Helena Claesson, Chief Financial Officer]

I would say that the majority of it is volumes and that GARO now is in a -- so to say, an organizational structure where we have the stuff needed to expand further with existing setup, so to say.

[Oskar Vikström, Analyst]

Understood. All right. Also another thing that I was thinking a bit about is just E-mobility. I mean it was very strong growth. Is it possible to get an understanding of sort of what products there -- I mean, was it fast chargers or more slow chargers? Or could you give us a flavor on just the sort of products that have been selling the best in this quarter?

[Patrik Andersson, Marketing Manager & Temporary CEO]

We can say it was the whole range from the wall boxes, the public charger and the [ private ] charger, but if we could mention one segment, I think we grow a bit more in the wall boxes. We grow in the whole portfolio but a bit more in the wall boxes segment.

[Oskar Vikström, Analyst]

Understood...

[Patrik Andersson, Marketing Manager & Temporary CEO]

Home charger, yes.

[Oskar Vikström, Analyst]

Yes. And just one other thing there, this slowdown in the Project business and Temporary electric installations. When you say slowdown, do you mean a decline or just sort of a flattening-out scenario?

[Patrik Andersson, Marketing Manager & Temporary CEO]

I will more say a flattening-out scenario, as you said, a flattening out.

[Operator]

[Operator Instructions] We currently have no further questions.

[Patrik Andersson, Marketing Manager & Temporary CEO]

Okay. Thank you very much, everybody, for listening to our quarterly reports.

[Operator]

If you missed any part of this call or would like to hear it again, a recording will be ready shortly. Thank you for joining today's call. Have a lovely day.