NOTE AB (publ)

And welcome to our Q2 presentation or the first half year presentation. As always, I will try to start with a short summary of how we see upon the quarter. First of all, we're disappointed of the sales. I will come back a little bit to why the sales came in at the level it came. But mainly I would say that it's due to the, we see delays in the communication area. mainly dependent on that the telecom operators have pushed out their investments in infrastructure and that has pulled out some of our demand, especially in this field, and that is also reflecting in the rest of the world sales. On the Western Europe side, the quarter came in fairly well aligned with what we expected. Profitability came back, especially in the Western Europe region. We are at almost at all-time high at 10.5%. The rest of the world is burdened a bit with the lower sales and that we couldn't compensate fully in that way. We can also say that cash flow came in aligned with what we expected, very strong. 154 million operating cash flow. We're very pleased with that. The inventory levels continue to decline. We are at almost two year low or something. Which is very positive. We're done with 300 million in inventory from our peak. Also very positive. The cost adjustments that we have talked about for the last quarters are quite well aligned. We still have some work to do. But as I said, the work never ends because when you think you're done, you see that one other site is declining and one other is increasing. And then you start to jiggle around a little bit. So you're never completely done. But we still believe that what we do is having a good effect. adjusting as we go along and we also see very positively upon the future. As you see we have today also presented that we will double our Torsby factory in size. Torsby is our largest factory at the moment and this investment in the extended factory will facilitate the growth of more than 100 percent of that site. We believe that we have customer demand for a big part of that increase over the coming years. So that is very pleasing to see that we have reached that far in that expansion phase. Besides that, we are seeing that the general economy is weak and that has the consequence of that several of our customers, these stocking activities take longer time than they have expected. and that also have been a bit of a burden for us on the sales side of this quarter all in all i would say that if we would exclude the communication i will come back to the to the to the segments later the quarter came in as we expected um profitability also fairly much aligned with what we expected um if we would have had the better sales in the communication area we would have reached a double digit OP in margin, which is in one way our objective for every quarter that we see. So all in all, that is how we see upon the quarter. If we then move on to the numbers, we can see that sales came in at 6 percent decline, 10 percent organic. Operating profit, 9.8% at 99 million. Underlying 97 million, 9.6%. Both of these numbers are below last year. But for those that follow us, it's important to see that this is our strongest OP if we look at the last four quarters. Q3 we were at 9.1, Q4 we were at 8.5 underlying, Q1 8.8, and now we're at 9.6. And for those that knows, we are guiding for that. We will keep this level going forward, which we are fairly comfortable with. When I say keep, that means keep or higher. We guide for slightly higher also. So we are expecting that to come through. We talked about cash flow, 154 million, 238 for the year. I think that is very pleasing. I think the group has never had a better liquidity situation. And we have an equity ratio of 49%, give or take. So, all in all, a very good quarter from a cash flow point of view. Year-to-date numbers, down 3%. It's never fun to see that we're down. So, this is really frustrating to see. I think our underlying business is significantly stronger than what we can report, but everything comes down to what the customer actually wants to receive in the quarter. This number, we are expecting that we very soon will come back into positive numbers. OP, 9.2%. Given where we stood when these stocking activities started to occur in the second half of last I think we have rebounded quite well. The last two quarters last year were significantly weaker. We see that we are in a constant increase, if you look quarter over quarter, and we expect that that increase will continue. Q3 is always a bit tricky to look into since there is the holiday. And you never know, or we were closing the factories two to three weeks, basically, in Western Europe, and that will have an effect on the sales. Normally, we manage to compensate the lower sales with lower costs from the holiday pay and so on. But this quarter is, I would say, the toughest to guide in. For the full second half, we are looking very positively upon this, and we see that several of the customers that are today weaker than last year are showing nice increases. The only segment that we don't expect that we will see some kind of recovery is in the communication. I don't expect that to happen. to come back into positive numbers until 2025. Yeah, that's basically how we see it. But we can say the cash flow is the strongest ever in the group. So from that perspective, it looks good. Moving on to the segments. As we said, Western Europe, first half year, 10.1% in OP. For the quarter, the number was 10.5. Rest of the world, 5.9. For those that remember, the first quarter, we came in quite weak, 4 point something. Second quarter, we were at 7.2. So we also see a stronger development in that segment. What you can see is that the number of employees is continuously going down. Now we are at roughly 1,500 or 1,490 or something. And that number is fluctuating quite a bit depending on where we see the increases and where we see that the temporary stuff is coming in and so on. But we are in a stable situation. If you look at growth, I said before that I expect Sweden to continue to increase. We see a slight decrease. We had quite high sales on the spot also in the first half of last year. That is a bit reflected on this number. UK starting to see increase. UK has been a bit weak over the last couple of years. We are now seeing some strengthening of that region. We are expecting UK to remain in positive numbers for this year. Rest of the world, we talk a lot about China. China is down 30% this year, and the reduction is stronger in the second quarter than in the first. Estonia, down 17%. We are expecting Estonia to start to reduce the reduction, if you put it like that. So the second half in Estonia looks much better than the first half of this year. But China will remain at a quite weak position. That is what we see at the moment. Moving on to the customer segments, the trend has been clear. Industrial, we have a defense in industrial segment. The growth in industrial is not only due to the defense. That is very important to say. Also, the big industrial customers we have are showing quite nice increases for the year. I would say defense is standing for maybe 200 million in the first half of this year. So say, what can that be? That is like 10% of the sales, slightly below that. We talked a lot about communication, done 20% for the first half, 27% in the second quarter. And this is the reason why we missed our guidance. We had expected to deliver communication for maybe 25 million more in the quarter and would have been in the more or less in the middle of our guidance. But we allow the customers to push out deliveries in that segment. And that was the reason why we missed the guidance a little bit. Medtech, we talked about it, that it would come in a little bit weaker. If you look at the Medtech for the last four quarters, we're quite in the range we have been the last three, four quarters. We had a strong growth in that segment in the first half of last year. So the comparable numbers are a bit tough. Greentech, I've said it before many times that it's starting to be in the size that it can no longer decline, but the customers are unfortunately continuously proving me wrong here. How should I say? It's quite sad to see. It's a segment where that should support the overall growth of the electrification trends. It should strive for a better climate and so on. But the customers are not seeing any turnaround in this segment. We have some customers that are growing in this segment. So that means that some is going really, really weak. When will this recover? It's very hard to say. I would say we are at the level now that it can. It's hard to shrink it lower. So my expectation is low on the green tech for the coming one, two quarters. But I don't expect it to continue to decline in the same pace that it has. The segment is down about 20 percent so far this year. So what can we expect for the half year to come? I think the trend that we see will be fairly much aligned with what we see. Industrial will continue to grow, driven by a few of the large industrial customers and from the defense area. Communication continue to be low. Medtech fairly flat quarter over quarter, but that will since we have the big or the strong first half in 2023, we'll see a decline in the year to date numbers. Greentech, I expect that to start to show that we should not decline more quarter to quarter. Last year, first half was a bit stronger and that effect we will still be measured against. But if you just say Q3, Q4 compared to the current run rate should not go down more. So that is what we see. If I would look into 2025, I would expect communication to bounce back very strong. Medtech, we are seeing that the customers that are stocking is starting to talk about the recovery in 25. Industrial segments, the customers that are currently not going so well are also looking very positively upon 25. So I would say that we will see a gradual strengthening of our sales in several of these segments when we are looking at the end of this year. Q4 looks very, very, very good at the moment. So all in all, I would say that the demand is gradually becoming stronger and also the period where customers with short call off lead times where they give us material authorization is now getting better and better. So we are looking positively upon several of these segments going forward. But the short term communication will be fairly weak. Green tech is on the low level that we are continuously monitoring, but we expect it to be flattening on the level that we are at. Yeah, I stopped there, otherwise I can talk forever, as you know. Some operational highlights. Still, delivery performance are Almost back in line after the component shortages. We are allowing a lot of deviations, and sometimes that is not reflected in our measured on-time delivery. Quality, still on a very good level. This year, it looks like this year will be a new record in PPM level, so we are expecting that to continue to be good. Ordered stock decrease, reflecting shorter lead times. We have talked about it several times. If you look at quarter to quarter, it looks fairly flat. So that is also something that is good. We're not seeing a good decline there for the deliveries in the coming six months. Carpex, still on a high level. We are investing for growth. I think we are, I don't remember the exact number now, but we are higher this year than last year in terms of equipment. equipment investments. Expansion of Torsby site. We expanded the Norrtälje site last year with another I think 1000 square meters roughly. We are looking at capacity increases in several more sites as we speak. We'll come back to those later when those are decided. But overall we are We are investing in both equipment and in our footprint to ensure that we can cope with the growth that we are expecting to come. Return on operating capital, 23%. That's a bit low. I think we can do better and we will come back with a better number going forward. As I said, strong balance sheet, equity ratio is up to 49%. liquidity situation is stronger than we have ever had in the group. So that looks also very good. So that is basically how the operational side is looking. To go to our last slide, the outlook, we are guiding down a little bit, 4.1 to 4.4 with the mid guidance fairly flat to last year. Last year we did 4.24 something. Our margin, we are expecting that to be aligned with the second quarter or stronger to reach 9.5 to 10.5 for the year. Our long-term target of seven and a half billion is still what we believe in reach. The market needs to come back to the strength it has shown the last, say, four or five years before 24. And as we have said before, we are not... 24 is a year that is very... How should I say it? It's one year that is not a lack in any other year. We came out of the component crisis in, say, in the second quarter of 23. Extremely strong order books. Demand was solid. All customers was really pushing us to deliver more. It only took like four to six weeks, and then we started to see declines in order intake. We started to see push outs due to inventory situations. I think in Sweden in 2022, the increase of inventory at the industrial sites were massive. I think the conversion rate from profit to cash flow in the first half of that year was less than 50%. visible, but no one really paid attention to them. And that has been a burden for us and for the industry for this year. If I look at our peers, everyone is indicating quite weak performance and also quite weak outlook for the year in terms of sales. I see this as that we deliver the growth in 22 and 23 that were supposed to come in 24. I don't see that the usage of electronics is declining. I don't see that our customers are losing market share and so on. And we are not losing any program. So our view of the future is still really, really positive. So it's a bit. tricky to sit and be a CEO. And then you need to adjust your cost side to mitigate the current sales level. And then you are looking at maybe three, four quarters ahead. We're looking at significantly higher volumes than we're doing today. So that is why we are constantly investing in equipment and in our footprint. But at the same time, we are adjusting the cost level to reach the profitability that we expect that we should be able to deliver. So it's a bit tricky situation where we are pulling one foot on the brake and one foot on the gas, if you put it like that. So I think that reflects basically where we stand, that the market is expected to come back very strong in a few quarters, but we will still see one quarter or so where we will see production level at similar levels as this quarter. It's a very tricky outlook and therefore we are keeping our that we guide in an interval and not the mean point. But if you look a few years ahead, it looks very, very solid. I think I stopped there and I opened the floor for questions.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Carl Norwin from SEB. Please go ahead.

Yes, good morning, Johannes. I hope all is well. Just a couple of questions from my side. If we start off with your lower guidance here, I just want to question a little bit regarding Q3, how you look upon that. I know it's hard and so, but do you think it's possible to reach similar volumes in Q3 as you did in Q4 or in Q2? Will that be tough given vacations, etc.? ?