Earnings call transcript: Garo Q1 2025 shows stable gross margins amid revenue dip

Garo AB reported its Q1 2025 earnings, revealing a 9% year-over-year decline in net sales to SEK 265 million. Despite the revenue drop, the company showed improvement in adjusted EBIT, which rose to SEK 0.4 million from a negative SEK 7 million in the previous year. The stock price reacted negatively, falling 9.53% to close at SEK 22.55, reflecting investor concerns over the sales decline and market conditions. According to InvestingPro data, the company’s revenue has declined 15.91% over the last twelve months, though analysts expect net income growth this year.

Key Takeaways

• Garo’s net sales decreased by 9% year-over-year.
• Adjusted EBIT improved to SEK 0.4 million from a negative SEK 7 million.
• The company maintained stable gross margins.
• Stock price dropped by 9.53% following the earnings release.
• Garo is focusing on electrification and e-mobility markets.

Company Performance

Garo’s performance in Q1 2025 was marked by a decline in net sales, reflecting challenges in the Nordic residential construction market. However, the company’s efforts to stabilize gross margins and improve adjusted EBIT demonstrate resilience in a tough market environment. The electrification segment remains stable, with notable project wins in Scotland and Wales.

Financial Highlights

• Revenue: SEK 265 million (-9% year-over-year)
• Adjusted EBIT: SEK 0.4 million (improved from negative SEK 7 million)
• Gross margins: Stable
• Net debt: SEK 286 million
• Equity asset ratio: 51.2%

Market Reaction

Garo’s stock price fell by 9.53% to SEK 22.55 after the earnings announcement. This decline places the stock closer to its 52-week low of SEK 17.8, highlighting investor concerns over the company’s revenue performance and market conditions in the Nordic region.

Outlook & Guidance

Garo maintains a cautious short-term outlook, with expectations of gradual market recovery. The company is preparing a 2026 strategic plan and aims to complete its strategic governance model by September. Long-term growth drivers in electrification and smart infrastructure remain intact. InvestingPro analysis indicates the company operates with a moderate debt level, with a debt-to-equity ratio of 0.54, providing flexibility for future growth initiatives. Analysts forecast 3% revenue growth for FY2025, suggesting potential recovery ahead.

Executive Commentary

CEO Jonas Klaren emphasized the company’s adaptability and strategic focus, stating, "We are staying the course with the ability to adapt quickly, act with discipline and always move with a purpose." Klaren also acknowledged market challenges, saying, "We continue to have respect for the challenges that remain in the market."

Risks and Challenges

• Weakness in the Nordic residential construction market.
• Challenges in the e-mobility market due to delayed investments.
• Potential supply chain disruptions impacting product availability.
• Competitive pressures in the electrification segment.
• Macroeconomic uncertainties affecting consumer spending.

Q&A

During the earnings call, analysts inquired about the company’s sales momentum in Q2, noting the impact of fewer working days. Garo highlighted significant project wins in the UK and the full realization of cost-cutting measures, which are expected to support future performance.

Full transcript - Garo AB (GARO) Q1 2025:

George, Chorus Call Operator: Ladies and gentlemen, welcome to the Garo Interim Report First Quarter twenty twenty five Presentation. I am George, the Chorus Call operator. I would like to remind you that all participants will be listen only mode and the conference is being recorded. The presentation will be followed by Q and A session. At this time, it’s my pleasure to hand over to Jonas Klaren, CEO.

Please go ahead.

Jonas Klaren, CEO, Garo: Good afternoon, everyone, and welcome to Garo’s Q1 presentation. My name is Jonas Klaren, and I am the CEO of Garo since January. It has been an intense start and I continue to be inspired by the strength, commitment and spirit of our teams. I spent time in most of our countries, met the majority of our plus 400 employees and seen firsthand both the challenges and the opportunities ahead. With me today is Helena Klasson, our CFO, who will guide you through our financial results later in the presentation.

So let’s get started. Next slide please. I will begin and summarize our first quarter. First out Garo electrification. We see a continued growth in Ireland and Finland.

At the same time we are seeing stable demands in the public, commercial and renovation sectors. However, the Nordic residential construction market remains weak. We continue to focus on stabilizing our sales and margins and we are seeing early signs of recovery in certain housing related segments. In Garo E Mobility the market remains challenging with the weak momentum and the delayed investments, But our action program is starting to show results and with costs coming down and improved cash flow. Sales today are driven by our proven products Entity Pro and the LS4 series in public charging.

While new products as home wall boxes compact and home are yet to gain market traction. As I said in Q4, we are pleased to have Entity Pro now ICERESH certified for Germany which has finally enabled us to start sales of the Entity platform. However, volumes are still modest and this is our general feeling of the German market in all. Our focus remains on securing market stability and improving the customer experience. Our strategic focus now on the leadership side, we now have our new C functions on board in the management team.

This is key to enabling better integration between electrification and e mobility. And it also ensures that we are positioned for future growth in electrification. Our customer driven development continues to be at the center of our innovation agenda and finally our long term growth drivers remain intact, but we continue to be cautious in the short term. In summary, we have a strong team in place and we are making progress, but we continue to have respect for the challenges that remains in the market both in the short and long terms. And now over to you Helena.

Next slide please.

Helena Klasson, CFO, Garo: Thank you, Jonas. And I would like to start by looking at the financial summary for the first quarter. Net sales amounted to SEK $265,000,000, a decrease of 9% compared to the same quarter last year. Coral Electrification continued to show stability while the charging infrastructure market has remained challenging. However, following a relatively weak start to the year activity levels were somewhat stronger in the latter part of the quarter.

Overall the gross margins have been similar levels to previous quarter where stronger margins within Golar Electrification have been offset by lower gross margins within Golar Immobility, a result of changed product mix. The adjusted EBIT for the quarter came in at 0.4 where the quarter has been burdened with NOK2.9 million in settlement costs for the former President and CEO. Adjusted EBIT in the same quarter last year amounted to negative almost SEK7 million. As Joma said, we can see the results from the action program implemented in the second half of last year. Decreased costs and we have our business area in Mobility now working towards a positive cash flow.

Next slide please. And then we look into the two business areas separately and we start with Electrification. Net sales amounted to SEK204 million for the quarter, which is SEK4 million less compared to the same period last year. The overall market for Electrification business area was mixed during the quarter, While Sweden experienced a decline during the global uncertainty and market stagnation and dropped 14%, other markets managed expectations. Both the Nordic region and the rest of Europe, excluding Sweden, showed a growth of 1216% respectively.

Sales in Ireland were particularly strong also in this quarter. Our project business decreased by 11% compared to the same quarter last year. The decrease in projects is mainly noticeable in Sweden, while the other countries have a good development in the product area. The operations in Ireland, The UK and in Norway continues to show a positive trend. Increased sales and improved profitability are noted in these countries through a broadened product program.

Adjusted operating profits amounted to CHF70 million where the quarter has been burdened as a fed with CHF2.9 million in settlement costs for the former President and CEO. Adjusted operating margin came in at 8.5%, which is slightly better compared to the same quarter last year of 8.1%. Next slide please. And now we focus on the Goro Immobility business area. Net sales amounted to NOK 61,000,000 for the quarter, giving us a negative growth of 28% or CHF 24,000,000 compared with the same quarter last year.

Immobility continues to be a challenging but important market for Goro’s future. During the quarter however, GARA has won several good projects in Europe. For example, a project with a forestry commission in Scotland. GARA will deliver a larger number of LS4s over a period of six months to be installed in the Scottish Highlands for public charging. The choice of Gauro’s LS4 for public charging is based on the weather conditions being very similar to the Nordic conditions.

Furthermore, Gauro has also won a larger project with LS Force for the emergency services in Wales. The market in Germany remains cautious and sales in the quarter were similar levels as last year. The adjusted operating profit for the quarter amounted to SEK 70,000,000 and is fully explained by the lower volumes. As said before, we can see the results from the earlier action program, decreased costs and the business area is working towards a positive cash flow. Next slide please.

And now looking into cash flow and balance sheet. Cash flow from the operating activities before changes in working capital amounted to NOK 10,000,000. Cash flow from operating activities after changing working capital amounted to NOK 500,000.0. Tied up capital from inventories decreased net with NOK20 million. We have a deposit with the supplier for materials ordered but not yet called off.

The deposit being in euro has remained unchanged during the quarter and amounted to the equivalence of SEK42 million at the end of this period. Our net debt position amounted to $286,000,000 compared with NOK $278,000,000 in the year earlier quarter. We had an equity asset ratio of 51.2% and available liquidity including overdraft facilities of CHF75 million. As from November, Gauro has entered into a new agreement with the bank regarding special conditions so called covenants linked to Gauru’s cash flow over time. As of March 31 Gauru met the special conditions.

And now back to you Jonas. Next slide please.

Jonas Klaren, CEO, Garo: Thank you, Helena. The next step in our journey has been to strengthen our leadership team to navigate change with an even stronger crew. On this slide, I would like to introduce our three new key roles in Group Management. Chief Operating Officer, Joe Re. Joe’s focus is to strengthen our industrial structure, cost control and on time delivery performance.

He supports the business areas by ensuring that production, procurement and logistics are coordinated and efficient enabling our sales teams to deliver to customers on time, in full and at the right costs. His role is to optimize the operational backbone freeing up our business area directors to fully focus on market growth and customers. The expected impact is stronger and more reliable execution in our core business. Chief Technology Officer, Paul Fox. Paul’s focus is to lead our innovation pipeline and product platform strategy.

He supports the business areas by ensuring that R and D is aligned with commercial needs, helping them bring the right products to markets faster and securing our R and D leadership. His role is to make sure our innovation is business driven with clear priorities and time to market discipline. The impact to deliver future ready and customer relevant solutions that strengthen our market position. Chief Human Resources Officer, Karin Wiegert. Karin’s focus is to continue to build our culture, develop leadership and secure talent across the group.

She supports the business areas and all functions by helping us create a unified high performance organization ensuring that we have the right people, capabilities and leadership to deliver on our strategy. Her role is to enable cross functional collaboration, leadership development and retention of key talents at all levels. The results will be a strengthened identity and culture. Together this team now forms the backbone of our transition supporting our business area and supply chain directors and country managers where each role has a clear mandate to enable better results, faster decision and a more integrated group, while keeping commercial ownerships fully with the business areas and our country managers. Next slide please.

This slide illustrates how we’re now moving step by step on our execution journey from setting the foundation to embedding the transformation into our ways of working. At the base of the arrow you see Phase foundations. This is where we have been and appointed the new C functions to find clear roles and responsibilities and introduce this as a concept we now call Team Garo as the platform for change. This was a crucial first step giving us the clarity and alignment needed to move forward. Moving up, we are now in phase two, strengthen and align.

Here we are driving country strategy reviews, launching initiatives across sales, supply chain and HR and beginning to align our R and D and operational governance on group level. On top of the ARRIS Phase three, integrate and accelerate. By September, we aim to fully roll out the new governance model, ensure group wide alignment between product development and operations and to finalize our 2026 strategic plan. This is a clear and focused journey and each step is building towards Agaro that is more integrated, more scalable and ready to lead. Next slide please.

Back in Q4, we said that we wouldn’t wait for the wind, We would adjust our sales and that is exactly what we have done in the first quarter. Despite the market that remains cautious we have made real operation progress. Our cost control program is starting to show results and we have improved cash flow and our EBIT is back slightly in positive territory. We’ve also strengthened our leadership with the new 3C roles giving us more speed and focus as we enter the next phase. Within electrification, we are seeing stable performance and early signs of recovery in housing related products.

In e mobility, the market is still tough, but we are seeing the effects of our actions and we are building a more resilient foundation. So yes, the market recovery is slow but it’s coming and when it comes we will be ready. The long term demand for electrification, energy efficiency and smart infrastructure is undeniable and Garo is building for that future now. We are staying the course with the ability to adapt quickly, act with discipline and always move with a purpose. That is the power of our team Garo and that’s how we’re going to lead this transition together.

That’s all. Next slide, please, and questions.

George, Chorus Call Operator: We will now begin the question and answer session. Session. Our first question comes from Lund Atton with Kepler Cheuvreux. Please go ahead.

Lund Atton, Analyst, Kepler Cheuvreux: Jonas, Helena, can you hear me?

Helena Klasson, CFO, Garo: Yes, we can. Hello. Hello.

Lund Atton, Analyst, Kepler Cheuvreux: Very good. Hey. So since we’re halfway through Q2 now, what can you say about the quarter so far? It seems like momentum was better at the end of Q1.

Helena Klasson, CFO, Garo: Yes. Well, we have continued to see so far the same trend given the fact electrification that is less working days and that has a little bit of an impact on the sales within electrification. Last year Easter was in March.

Lund Atton, Analyst, Kepler Cheuvreux: Right. Okay. And then you mentioned these several good projects in Scotland and Wales, I believe. Can you tell us anything about the size or significance of those?

Jonas Klaren, CEO, Garo: The size and significance is roughly if you look into numbers a few hundred LS4s you can say. I cannot go into a specific number since this would be a little bit more clear to us, but it’s a significant number and the LS4 has always been a very favorable product in The UK and in Ireland And we’re really happy that sales has taken off again.

Lund Atton, Analyst, Kepler Cheuvreux: All right. Very good. And then I guess one last quarter from my side. It seems like you have realized almost all of the cost outs. Do you have any additional potential there to be realized in Q2?

Or is it fully realized here?

Helena Klasson, CFO, Garo: I would say that it’s fully realized. We have the effects, yes.

Lund Atton, Analyst, Kepler Cheuvreux: Yes. All right. Very good. That’s all for me. Thanks.

Jonas Klaren, CEO, Garo: Thanks.

George, Chorus Call Operator: Ladies and gentlemen, this was our last question. I hand back over to the management for any closing remarks.

Jonas Klaren, CEO, Garo: Just want to say thank you for listening. We will see you in Q2 again. Thank you.

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