Earnings call transcript: Garo Q4 2024 revenue miss, stock rises

Garo AB’s Q4 2024 earnings call revealed a mixed financial performance, with net sales of CHF 283 million, falling short of the forecasted 309 million. According to InvestingPro data, the company maintains a healthy gross profit margin of 41.17% despite challenging market conditions. Despite this revenue miss, the company’s stock experienced a 2.06% increase in pre-market trading, reflecting a cautiously optimistic market sentiment. The company’s strategic focus on cost optimization and public charging infrastructure may have contributed to this positive reaction.

Key Takeaways

• Q4 2024 net sales decreased by 9% year-over-year.
• Full-year net sales declined by 16% compared to 2023.
• Stock rose by 2.06% despite missing revenue forecasts.
• Focus on public charging and cost optimization.
• ISO certification opens new market opportunities in Germany.

Company Performance

Garo reported a challenging year with a 16% decline in full-year net sales to SEK 1.2 billion. The company faced significant inventory write-downs amounting to SEK 48 million, impacting its financial performance. InvestingPro analysis reveals concerning trends, with analysts anticipating further sales decline and negative profitability this year. Despite these challenges, Garo’s strategic initiatives in electrification and e-mobility sectors position it well for future growth. InvestingPro subscribers have access to 6 additional key insights about Garo’s financial health and growth prospects.

Financial Highlights

• Q4 Net Sales: CHF 283 million, down 9% year-over-year
• Full Year Net Sales: SEK 1.2 billion, down 16% from 2023
• Q4 Adjusted Operating Profit: SEK 3 million (compared to negative SEK 8 million last year)
• Full Year Adjusted Operating Profit: Negative SEK 7 million (down from SEK 43 million in 2023)

Market Reaction

Garo’s stock rose by 2.06% in pre-market trading, reaching a price close to its 52-week low. This positive movement suggests investor confidence in the company’s strategic direction, despite the revenue miss and overall decline in sales.

Outlook & Guidance

The company anticipates a gradual market improvement in 2025, with a focus on public charging infrastructure and recovery in residential construction. With a current ratio of 1.36 and an Altman Z-Score of 6.98, InvestingPro data suggests the company maintains adequate financial stability despite current challenges. Garo remains confident in long-term opportunities within the e-mobility sector and aims to optimize working capital. For detailed analysis of Garo’s financial health and future prospects, investors can access the comprehensive Pro Research Report, available exclusively to InvestingPro subscribers.

Executive Commentary

CEO Jonas Klaren emphasized the company’s role in the energy transition, stating, "Companies like ours sit at the heart of the energy transition." He also highlighted the importance of adapting to market demands, saying, "We are constantly adapting strategies to align with shifting demands."

Risks and Challenges

• Continued decline in residential construction impacting sales.
• Inventory write-downs affecting profitability.
• Dependence on European market trends for growth.
• Potential supply chain disruptions.
• Macroeconomic pressures affecting demand.

Q&A

During the earnings call, analysts inquired about the significant growth in data center deliveries, particularly in Ireland. Questions also focused on the company’s production capacity and potential for growth without increasing headcount, as well as strategies for improving working capital efficiency.

Full transcript - Garo AB (GARO) Q4 2024:

Conference Moderator: Ladies and gentlemen, welcome to the Garo Year End Report for twenty twenty four Conference Call. I would like to remind you that all participants will be in listen only mode and that the conference is being recorded. The presentation will be followed by a 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: Welcome everyone to the presentation of GARO’s report for Q4 twenty twenty five. My name is Jonas Klaren and I am the new CEO of GARO since the beginning of this year. I’m very excited to be here today and to have the opportunity to lead this company into its next chapter. I have now worked twenty five days at GARO and during these five weeks I have tried to see all of our four zero six employees. I still haven’t managed to go to Finland and Germany yet, so I have around 12 people left on the list, but I’m working on it.

With me today is Helena Claasson, our CFO who will walk you through our financial performance in more detail a bit later in this presentation. Before diving into the numbers, I want to take a moment to reflect on where we stand today and the progress we have made and what we are doing to ensure a stronger and more profitable future for GARO and why companies like GARO play such a crucial role in the global energy transition. European power demand is expected to rise by around 40% by 02/1950. This means that not only installing plus 40% but almost all of the existing electrical infrastructure we rely on today will need to be upgraded. With my 25 of experience in this segment and now twenty five days at GARO, I can say with absolute confidence that companies like ours sit at the heart of the energy transition.

Our products aren’t just relevant, they’re going to be essential for decades to come and that’s the main reason why I choose to join GARO. I believe in this company’s mission, its products and its potential to make real impact in this time and space we are living in. Next (LON:NXT) slide please. Most of you have probably seen Gaurav products before, but this slide serves as a reminder that we are everywhere. We offer between 3,000 to 4,000 products in our range and after today I’m pretty sure that some of you will start spotting them even more.

To be quick, let me just walk you through this slide. Starting from the left, you will see our solutions for the temporary power and temporary EV charging at worksites, a growing segment as all construction sites are moving towards becoming fully electric. As we move along, we have our cable cabinets in the streets that transfer the electricity from the streets into apartments and commercial buildings as well as public charging stations. The same goes for the residential areas where we support homes and also even some more niches like camping grounds and marinas. Next slide please.

In real life, some of the products looks like this. These are snapshots from our Electrification business area. Next slide please. And here we have some key products from our e mobility business area in Real Life. Next slide please.

Now over to the operational highlights starting with Galvo electrification. I’m happy to say that Ireland continues its strong growth. It’s one of our best performing markets and this positive trend has been stable over time. Across the public sector and in commercial and industrial properties, we are still seeing a steady demand which has been important for our stability. However, in the Nordic region, residential construction faced a significant decline throughout 2024 and this has affected our housing related products.

The good news is that it seems that we reached the bottom of the downturn and sales are now stabilizing. We expect a gradual market improvement moving forward and you will see that our electrification business area is performing good which puts us in a stronger position for 2025. Now let’s look at how our e mobility sector is performing. E mobility is still facing the pressure from the macroeconomic climate. Investments decisions and purchasing patterns are being influenced by market uncertainty.

But despite that we are focused at finding the right opportunities to keep driving growth. Public charging remains the main driver for sales in this business area. This continues to be a strong and growing market. We also achieved an important milestone with the Ice Resch certification for both our entity and our Polish production site. This not only boosts our credibility, but also opened doors to more opportunities in the German regulated market.

Even with these challenges, GARRE remains agile. We are constantly adapting strategies to align with shifting demands and now with Europe’s strong focus on sustainability and the energy transition, we expect steady growth in public charging moving forward. Now let’s talk about how we’re building the future. To ensure a long term profitability, that’s a hard word, we developed an action program. The focus is clear, boost efficiency, control costs and strengthen profitability.

One of our strengths is how Goro Electrification and Goro eMobility works together. These synergies helps us optimize costs and provides a solid foundation for growth. We also built in scalability across our business and product lines. This means that GARO is more flexible and able to quickly adapt to market demands giving us strong competitive edge. Finally, we are not just looking at the short term.

Our investments in innovation and strong customer focus will drive sustainable growth and help us keep reinforcing GARO’s position in the market. And now over to you, Elena, with the figures. Next slide please.

Helena Claasson, CFO, GARO: Thank you, Jonas. And I will start by looking at the financial summary for the fourth quarter. Net sales amounted to CHF283 million, a decrease of 9% compared with the same quarter last year. We are pleased to notice an increase of sales within GARO Electrification by 2%, while GARO eMobility posted a decrease in the quarter of 33% or SEK32 million. For the full year of 2024, net sales amounted to SEK1.2 billion almost to be compared with almost billion in the year of 2023, a decrease of 16% as the majority of the lower sales was seen within the business area Goro eMobility.

Overall, the gross margin has been at similar levels as previous quarters, where strong margins with Ingaro Electrification has been offset by lower gross margins with Ingaro in Mobility. This is a result of changed product mix. The adjusted operating profit for the quarter amounted to SEK3 million compared with negative SEK8 million for the same quarter last year. Adjusted operating profit for the full year amounted to negative SEK7 million compared with SEK43 million last year, where costs for write downs of inventory in this year mainly within the business area called E Mobility has burdened the result of SEK48 million. Last year, it was improved by SEK8 million.

To summarize the quarter, we can see an improved cash flow and growth within GARO Electrification that is offset by continued challenges within GARO Immobility. Next slide please. And now we’ll look into the two business areas separately and we’ll start with GARO Electrification. Net sales amounted to $220,000,000 for the quarter, giving us, as I said, a growth of 2% compared with million last year. The electrification business is and remains our stable base.

This is where Golar has its history and the stability in this business area gives us the possibility to take on challenges and invest in new markets for Golar Mobility. As Jonas mentioned, our operation in Ireland shows a positive trend. By broadening our product range, we noticed both growth as well as improved profitability. The U. K.

Office continues to be a market that requires large volumes to reach the desired profitability. The price pressure is clear, but during the quarter, we have implemented important operational improvements to meet these challenges. Adjusted operating profits amounted to CHF26 million compared with CHF15 million in the year earlier quarter, giving us an adjusted operating margin of 11.8%. Adjusted operating profit for the full year amounted to CHF 84,000,000, where Gara has made a write down of CHF 9,000,000 for slow moving inventory. This is to be compared with capital gains from sold properties in 2023, which boosted the result by CHF 18,000,000.

Next slide please. And now we move on and look into Gaurav eMobility business area. Net sales amounted to CHF 62,000,000 for the quarter, giving us a negative growth of 34%. E mobility continues to be a challenging, but still important market for Golar’s future. The competition is getting tougher, but we keep our focus in mind in doing business based on quality, customer focus and innovation.

The agreement with OnePark and installations at Erland Airport in Norway are clear examples on how our products and our team create long term values. The adjusted operating profit for the quarter amounted to negative SEK 23,000,000. Previously communicated action program has been completed in the quarter and this will have full effect as start of this year, first quarter. The adjusted operating profit for the full year amounted to negative CHF 92,000,000, where GAR has made write downs of almost 45,000,000 for slow moving inventory in 2024. This is to be compared with the same kind of write downs last year of approximately 10,000,000.

And to summarize the two business areas, one could say that GORI Electrification has had yet another stable quarter, while GORI Immobility continues to face challenging marketing conditions. Next slide please. And now it’s a bit on cash flow and balance sheet. Cash flow from operating activities before change in working capital amounted to SEK6 million. Cash flow from operating activities after changes in working capital amounted to SEK37 million.

Slide up capital in inventory increased with SEK7 million net. Furthermore, we have a deposit within the supplier for materials ordered but not yet called off. At the end of the period, the deposit amounted to CHF45 million, where no additional deposits has been made in the quarter. Our net debt position amounted to CHF285 million compared with CHF225 million compared with CHF223 million last year quarter. This is, however, CHF30 million lower than our net debt position for Q3 of this year.

We had an equity asset ratio of 50% and available liquidity including overdraft facilities of SEK100 million. And now back to you Jonas. Next slide please.

Jonas Klaren, CEO, GARO: Thank you, Helena. So what’s ahead? The recovery of the e mobility market is slower than we had hoped, but we’re still confident about the long term opportunities. The continued expansion of charging infrastructure driven by sustainable goals will eventually boost demands. In the Nordic region, residential construction remained low throughout 2024, but looking into 2025, we expect a gradual recovery, which should benefit our housing related products.

On the brighter side, demand in the public sector, commercial and industrial markets remain strong, driven by ongoing renovation needs and the increasing focus on energy efficiency. Overall, while there are still some short term challenges, we expect gradual market improvements across both electrification and e mobility and the outlook for 2025 is definitely more positive. So over to Q and A. Next slide please.

Conference Moderator: Ladies and gentlemen, we will now begin the question and answer session. You. The first question comes from the line of Lund Anton from Kepler Cheuvreux. Please go ahead.

Lund Anton, Analyst, Kepler Cheuvreux: Good morning, guys. Can you hear me?

Jonas Klaren, CEO, GARO: Yes. Good morning.

Lund Anton, Analyst, Kepler Cheuvreux: Very good. So you mentioned deliveries to data centers specifically in the quarter. Can you please elaborate a bit on how this impact your Q4 figures?

Jonas Klaren, CEO, GARO: Can you repeat the question?

Lund Anton, Analyst, Kepler Cheuvreux: Yes, sure. So you mentioned that you had deliveries related to data centers in the quarter. Can you provide any color of the magnitude, the size, profitability and so on?

Jonas Klaren, CEO, GARO: It’s all in the report. If you are going to wait for it to be with a written report that we will publish later on, it’s been published. But it’s mainly in Ireland, I think, where we’re working with data centers. Ireland is a strong sector for data centers.

Helena Claasson, CFO, GARO: I think you could say that it has boosted it’s been part of the boosted sales in Ireland throughout 2024. There is no sort of say framework agreement. I couldn’t give you sort of say a value of the contract or anything, but it’s business that is continuously growing for us and it helps us, so to say, improve into other markets as Jonas mentioned earlier and other, so to say, product groups.

Lund Anton, Analyst, Kepler Cheuvreux: All right. Very good. And then your headcount is now 15% lower year on year on the back of the cost outs throughout the year. I’m just wondering, would you say you work at full capacity grow from here without increasing the headcount?

Helena Claasson, CFO, GARO: Well, as Jonas said, we have worked on our sort of say production flows. We have made those more efficient and I couldn’t give an exact number, but there are there is good potential for growth with what we have today.

Jonas Klaren, CEO, GARO: For sure. And our facilities are also we have good potential to grow. Just to give you an example, if the German market now continues to follow the path of as expected 700,000 new EV vehicles for 2025, that’s quite a bold statement from Germany, but then we can easily build up our production in Poland quite fast. Since we’re now Ayseresh approved, it’s also in the factory. It’s a good positioned market very close to the German border as well in Poland.

Lund Anton, Analyst, Kepler Cheuvreux: Very good. Thank you. And then you also mentioned you have new debt covenants with your bank and it is related to a cash flow. I’m guessing this is specifically tied to your working capital levels. How should we think of the working capital now?

Let’s say, if growth comes back, are you satisfied with the level where you are today or is there still room for improvement?

Helena Claasson, CFO, GARO: No, there is a large room still for improvement. And we have really sort of say tightened or limited purchases. As you know, we still have high inventory values. So there is still a lot of room for to free up capital from inventory. And if we look back net working capital, we in 2020 well before the COVID situation, I would say that we had perhaps 20%, twenty five % net working capital in relation to turnover.

So that’s our main target to come back to that.

Lund Anton, Analyst, Kepler Cheuvreux: Excellent. That’s all for me. Thank you guys.

Jonas Klaren, CEO, GARO: Thank you.

Conference Moderator: Ladies and gentlemen, that was the last question. I would now like to turn the conference back over to Jonas Kalari, CEO for any closing remarks. Please go ahead.

Jonas Klaren, CEO, GARO: I just want to say thank you for listening from me and Elena and I think that’s all for us.

Helena Claasson, CFO, GARO: Thank you.

Conference Moderator: Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call and thank you for participating in the conference. You may now disconnect your lines. Goodbye.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.