NOTE AB (publ)

Good morning everyone and welcome to Notes Q4 presentation and this is also our year end report. As always I tried to make some kind of summary for how the quarter went. You could say that it went fairly much in line with what we guided for in December, which it did. But under the surface there was quite big, how shall I say, fluctuations also in the last couple of weeks as always. That is how our industry is behaving. I can say that I'm especially pleased with, I would say, maybe three things. First, that the demand stabilized at the level that we feel is some kind of bottom. We don't expect our demand to decrease. We see our order intake or order backlog is 2% down, slightly down due to... We had longer orders a year ago than we have today, so that has an effect. You could say that we have a better order backlog today than we had when we entered Q1 last year. However, we are guiding for quite similar sales in Q1 as we did in Q4. One reason for this is of course that in Q1 last year we still had some positive effects of the expensive components that were part of our sales price. So volume-wise, I would say that the guidance for Q1 this year is slightly higher than last year. But the price of component is lower, and that means that our top line is slightly lower. So that is one thing that I'm pleased of. And we also see that with the discussions with customers, we are seeing that we are gradually coming into a position where we expect to turn decline into growth. The effect of the higher component prices are fading out, and we would say that we are production-wise slightly higher today than we were a year ago. But this has an effect, and we have to bleed that out until we see that the numbers are changing. Stock reductions have continued to affect our sales. We still have some customers that have entered this process quite late, and we're still working our way through that. We can also say that when it comes to inventory reductions, note as a group, we reduced our inventory with more than 300 million last year. That is fantastic, but that also shows how much you can do. So our suppliers have shipped 15% lower sales to us compared to our sales to our customers. So that gives you an understanding of how severe this effect is when you see stock reductions. It's a word that is very hard to quantify, but for us it's very easy. We say that we consume material for maybe 2.5 billion, and on top of that we have 300 million in reduction. That means that 12% of our consumed goods came from our inventory reduction. So our suppliers have seen a quite steep decline of our purchases. So that gives you an understanding for how much these stock reductions can affect the top line. But we see that we are on the end phase of that. We are less and less customers are talking about it, and we see that the demand is picking up. We also see that demand from, how shall I say, awarded new businesses that have taken time to get in production. We see that those programs are gradually getting their way into our production phases, away from industrialization phases. So we can expect those programs to continue to increase during the year. So that is one thing that we see positively about. So I would say, number one, demand is stabilizing on a low level, and that is very, very important to know. That means that we have some kind of foundation that we believe that we can build our capacity from. Secondly, profitability. Q4 is our second best quarter when it comes to underlying profitability. That is to me very pleasing. That means that our activities to adjust our cost base to where we are, to the new level of sales is having a good effect. If we can be on this level going forward, I would hope to say yes on that. But we are guiding for 9.5 to 10.5 percent, which is slightly lower compared to what we're reaching Q4. If volumes comes back, I would hope that we can increase that and we will come back to that. But as we stand today with the guidance we have, if we enter the lower end of our guidance, we will be at the lower end of our profitability. If our sales comes in stronger, yes, that will have a good effect on our operating profit. We are today fairly well in balance between cost and sales. That doesn't mean that we are continuing to do cost mitigation actions. We still have factories that are declining. That is clear. And some of those we are not through yet with cost mitigations. But generally speaking, those activities are less and less, if you put it like that. So secondly, profitability, very pleasing to see. And then third, I mean, cash flow this year, it has been fantastic. Over 500 million in positive cash flow that has generated a strong cash position that we can use for investment. We can use it for dividend or whatever that we decide on. But it's very good to have this strong cash position to work from. So I think that has been something we have talked about for, say, one and a half year. And it has came in quite much aligned with what we have guided for. And I also expect that also Q1 will most likely have a very strong cash flow, because what happens is that if we start to buy components aligned with our demand, then our APs will grow. So that will also have an impact because we are still reducing inventory. So after inventory reduction, you will have one or two quarters with slightly higher cash flow just because you're building up your AP. That is how it works. So we still expect that the first half of this year will have a, how shall I say, a stronger cash flow than normal. So we are very pleased with that. And that has provided us with a really strong balance sheet. I think our equity was up to 51 percent. If I'm not mistaken, that is probably the highest level we have ever had, or at least since I started. And we have always said that we have a strong balance sheet. So that is very pleasing. So a lot of positive things, I think, has came out of this quarter. And let's build upon that moving forward. If we look at some numbers, sales down with five percent, that is six percent organically. We had some positive currency. I will leave that. Operating profit, as we said, underlying ten and a half percent. The only adjustment we have made is that we have taken away our negative effect from currency fluctuations. And as you know, when the dollar increases in strength, we will have some, it will have some push on our profitability. When the dollar is getting weaker, if that ever happens, we will see a positive delta instead of a negative. I remember one funny thing. When I started, we were talking about that the dollar at 850, that was a really strong level that has to go down. And that is like five years ago. So that was a mistake, you can call it. But it's very hard to mitigate this as well. So that is how it is. But ten and a half percent, very, very good. Q4 last year, we were in the beginning of mitigating costs. We had too much costs. The sales went down and we see that clearly on our margin that Q4 and Q1, 24. We had a very hard push on our margins. We see that we are through that a little bit and we see positively upon our margin development. If we look at the full year, we are down with 8 percent. I think that is 10 percent without acquisitions. And our underlying operating profit came in at 9.3 percent. That is slightly down from 9.4. We almost reached 20, 20, three years level, which was our highest sales year ever. So I think that at the end, when I summarize this, I'm not pleased with how we perform, but this is very encouraging to see that we managed to keep our margins at the level that is similar to last year. So I think that is something that we will take with us and build upon. As I said, cash flow, 539 million excluding acquisitions. Fantastic. And that means also that we have a very strong cash position. So let's see what we do with that going forward. But all in all, if you summarize this, started quite weak. We struggled a lot on the cost side the last quarter. I think we came in very, very, very, very good given the circumstances and all the actions that we have taken has paid off fairly much aligned with what we have expected. When we went into Q4 and we were trying to guide when we did the Q3 report, we had the feeling or our view was that we would reach 10 percent or more in underlying profit. But it's very, how should I say, it's easier to tell you when we reach it than to say that we will reach it because then if we don't do it, we will miss out what we say. But we try to be transparent as always. So that is how you should read our guidance as well. Looking at the segments, not surprisingly, we see that Western Europe, quite low reduction, we are minus 3 percent. Here's where we see that the best development on the profitability has happened. 23 percent down on the rest of the world. That is very problematic to mitigate. So our profitability in the rest of the world has declined. 5.2 percent. But also looking at some with some, if we look at say three, four years ago, I think we were below this number. I think it was maybe in 21 that we reached 5 percent in the rest of the world. So even if this is seen as a quite weak number, which we still believe, but it's still not that bad looking at the longer horizon. But that is how it is. If we look at the countries, I mean Sweden, slight reduction, UK, slight reduction. Finland is doing very well. We have been awarded a few new programs there that are fully in production. So Finland is very, very strong at the moment. We expect Finland to continue to grow this year. We expect Sweden to bounce back to positive growth. We expect the rest of the world, both Estonia and China, are expecting growth this year and also Bulgaria. But Bulgaria is so small, so we don't look at it there. But all in all, yes, what I would say is that the market that we think is weakest looking at markets, I think that would be UK. That is, they're still struggling with the demand. So that is something that we are slightly negative about. But very pleasingly, we see that the full year on Western Europe is above 10 percent, really strong. And we are expecting the rest of the world to bounce back into better profitability. If we will reach the 7.6 as we did in 23, I don't know that, but we will be better than the 5.2. That is my firm belief in this year. So that is a small overview of this. If we look at the segments, industrial only segment at growth, subsegment defense. I will take that question here instead of having it asked afterwards. We are grow or defense is roughly 10 percent of our sales in 2024. And we are expecting that number to continue to increase going forward. Communication is one of the segments that were the, how should I say, the foundation for our missed guidance in Q3, really weak in the second half. We are currently running it at 17 percent below below 23 and 23 was not a fantastic year either. So the comparison is quite easy, but we're still significantly below. I would say that communication is one of these segments that are swinging a lot. So when the market or when our customers customers are starting to order, we expect that this segment will come back quite strong. Medtech down 16 percent. However, we had slightly higher sales in Q4 in Medtech than we had in Q4 23. So we see a small recovery in that segment. And we are expecting it to at least remain on current level or starting to grow again in next year. Green tech for those that watch me on the on the on the industry this morning, it's one of the segment that I've said in. I think this will be like the eight consecutive quarter that I would say it cannot be weaker, but it still surprises me on the on the negative side. And I would say that this is really frustrating. We we see that Europe is talking so much about the change to to to to green environment, to EVs and all that. But on our customer side, on the sales to our customers, on their sales to their market, we still see really, really weak demand. So we don't see and we don't see a swing here. And I will not say again that it cannot get any worse. I don't believe it will get worse, but I will not say that again. But I hope really that this will will will come back and we still believe that this is a segment where we want to be present. We want to widen our customer base. We have a few new customers coming in also in this segment. Because somewhere in the future, this will be a really, really strong demand in this segment segment. We need to be positioned to have the winners when that happens. So we have a wide variety of customers in this portfolio, but we don't see the growth yet. I still believe that it will be become it will bounce back to be our second biggest segment again. It's just a matter of time. I'm convinced of this. And we still believe in our customers here. And we have very good companies in this segment as well. So it will bounce back. I hope it is 2025. Moving forward, some of our operational highlights. Call it and deliver performance in focus. We have been struggling on our delivery performance. We can see that in the fourth quarter, we are back to two levels where we were before the component shortages. That is very pleasing. I would have expected us to be back earlier. I have to be honest. But we are now performing at the ninety five plus percent in on on time in full deliveries. That is really pleasing to see. Of course, component availability has a big impact on this. We talk about inventory reduction. It sounds very easy to do, but it's really it's really hard work for for all the factories to drive this down. It's a constant challenge. We have our our .P.O. Where Cecilia and her team is doing a fantastic job in driving these the suppliers to accept cancellations, to accept returns and all that. And that every single every single how shall I say transaction takes time. So it's really interesting to see this. I've been working within this in this area myself for for 10 plus years. And I know how much you have to work with it. So I like what I see. But to reduce it with 30 percent of inventory, that is a huge reduction. That's fantastic. Well done to all that work with this order stock. Two percent done. I would say that I would put my neck out again and say that this is the last quarter in this downturn that we will see negative order order stock. I would expect it from Q1 to start to show positive numbers. I would be really surprised if that doesn't happen. This is also the last quarter where I can say that we had the order horizon were longer than normal. After Q2 and onwards, it was basically back to normal. Then it was basically a year ago since the component crisis ended and that those effects are more or less gone. So I'm even if it's a negative number, I still believe it came in fairly OK. It was actually higher than I expected. I would have expected a higher decrease than the minus two percent there. So this is also a good indication that we are somewhere on the on the on the face of changing. We talk a lot about Capex investments and we are continuing to invest in a very steep growth. I would say that from a capacity point of view today, we could easily do five billion Swedish in terms of our equipment capacity. So just to give you an indication where on where we are aiming, we are aiming at a high growth pace, even if we don't get support from the from the from the customer orders at the moment. The indications from all our customers is that they are expecting a strong bounce back to to how should I say before 2024 year. So this is also very important to keep in mind. And we are we're using this this slowdown to to do a lot of activities to be in better shape. I mean, to extend Torsby, if they were growing 30 percent plus, that is very tricky. Now we have maybe a year with less than 10 percent growth. And then we are trying to mitigate that and get the business in shape for this. Lund has had a very steep growth basically ever since I started and we expect that they also going forward. But now we have really outgrown our old facility. We're renting like three thousand square meters on the on the building next to our building just to just to make it happen. But we're really looking forward to to enter the new factories that we that we're building. And I would say more to come in this area. We are we have outgrown our capacity in some other factories where we are looking at other options, either extending or moving in other places as well, where we see that our capacity has reached the ceiling. So we will get back to you on that one. Return on operating capital. Twenty two percent. I said that when we are performing as at our best, we will be reaching closer to 30. I still believe that we were up to 28, 29 in 21 or 22. And I don't I don't see why not. We should be able to perform better on this KPI as well. We talked about the balance sheet really strong, really good. Gives us all the options that we can you can want. Outlook. Before I go into outlook, I would give you some other view of how I see the market that we are operating. We are we are we are considering us where to be a northern European EMS company. That means that our strongest demand that we have, the high concentration of customers are based in, say, Scandinavia or Nordics combined with UK and some German and some other companies. But everyone close to the Nordic region. What you can argue with today is that OK, are we bet on the wrong horse or Europe going to start continue to struggle? I would say that Europe has a quite weak position given how China and US is boosting their own production. They are trying to to get their own getting the economies in those two regions that I see as our competitors when it comes to production, even though we're not competing head to head, but in some way. So Europe needs to get our our our growth back in shape. But even without that, I still believe that the move back with production into Europe and when the inventory reductions are fading out, Europe will grow or Europe production will grow even if even if the sales in Europe doesn't grow. That is how all the customers are expecting. That is how we see all the trends on the market. So even even with the weak European economy outlook that we see today, we still expect that the industry in Europe will continue to grow five percent plus. That is the outlook from all the analysts that are following the sector. So yes, European industry is quite weak, but production wise, we're seeing that the regionalization is is is getting more and more momentum and that will that will boost production. So, yes, I and then on top of this, if the European Union could get their act together and start to compete with other regions, that would mean that European would have a fantastic position. We haven't seen that yet, but that is still in the cards if you put it like that. And we should see that happening in the near future, because today. I mean, if Germany, France, Spain, all these countries are performing really, really poor, something has to happen. Otherwise, there will be some kind of revolution, I would expect. So that's hope that we get this act together. With that said, I think that when we look at the future, we are we are expecting the first quarter of twenty five to be in line with with the last quarter here. That means that we are aiming at me and maybe one billion twenty five plus minus a few percent for the full year. Twenty five. We are still believing that we will reach three point nine to four point three. We still believe that our growth will be steeper in the second half, mainly driven by the second half. This year was quite weak, not saying that we should, so to say, increase. So if the market is opening up and we see that that growth is picking up, we will expect that our sales will come in in the higher end of our guidance or even exceeding that if that happens. But we're still guiding for and forecasting on current market conditions. We are not expecting any pickup of the industry when we make this guidance. And we also believe that our margins will remain strong. I think the full year best margin we have had underlying is ten point two percent, if I recall it right. I'm looking at you like you should know, but that is my belief. But give or take. OK, I will end the presentation with that and open the floor for four questions. And as always, I try to start if there is any questions in the room.

Yes, hello Lucas, equity analyst from Indres. Thank you for the presentation. I was wondering, I interpret it as you have observed during the year a negative development when it comes to the time from new customers receiving a quote until decision making. Is the situation the same during the last couple of months or have you observed any changes in that development?

I would say that I see more of what I call movement. We're moving away from prototypes and pre-production into serial production. So that tells me that the products or the programs that we are facing in are now getting promoted on the market. So that means that our customers has faced out their old assortments or their old stocks basically. So yes, I see higher activity in this area and I see that the times will decline going forward. That is my expectation. Great, thank you. Any other questions? If not, I will move to questions from the web. I have one from Johan. If Green Tech should pick up, which type of products do you think would be affected? Is it EV chargers or is it something else? I think the closest to pick up that I see is probably within the EV chargers. I mean, if I look at solar panels have a longer horizon until the IC change. So EV chargers, both AC and DC, AC is the low powered, the ones that you have at home or in your multi-residential buildings or in the offices and the DCs are the high power chargers that you see on the gas stations. I think that both of these will pick up. I would say especially high focus on the high voltage chargers. That is where I see that there is more investments made currently. But I read also an article this weekend that only 14% of the multi-residential buildings in Sweden has capacity to charge cars currently. 14%, that is quite significant. That was the second most important reason for not choosing a full electric vehicle today when a private person is buying a car. So that infrastructure has to come. And as I said before, when the interest rates are declining, then the multi-residential buildings, the BOOS, they will start to put, when they pay less in interest, they will have more capital to invest in future looking activities. So I expect this to pick up quite quickly when we see that the interest rates are getting lower in real terms. So I would say EV chargers is probably the first and easiest step. Then again, we have quite a few products going to smart buildings where you can control your climate and save energy and so on. That area will also pick up when the interest rate goes down. So that could also be one of the areas that can come in. So I would say those two are my best guess. I hope I answered your question, Johan. Then I have one from John Hultner. How much of your margin decline in the rest of the world is due to lost customers' production volumes and how much due to general market weakness? How likely is it that you will gain back lost volumes and margins in the rest of the world? I would say that half of our decline is due to late actions from our side. We were overstaffed given the weaker volumes. So half of that, say that we went down from 7.4 to 5.2, I would say that back up to 6.5 is basically that we are better in balance with the demand. We also see that already Q4, we saw a slight increase in Estonia. We expect that Estonia will grow quite significantly. Estonia will come back with good margins this year. China, we were overstaffed in the first half year. We made a quite big reduction in Q3 or Q4. And we expect that that will also help our margins to come back. We also see some positive, how should I say, trends in the horizon that China is bouncing back a little bit. And then we will get back with margins in the rest of the world. So my expectation is that Q25 will be a better margin year in the rest of the world. And I think that with the same volumes that we had this year, we will earn more money in this region because we are better in balance. Next one is from Thomas Blikstad. Thank you for the presentation, Johannes. Gross margin is at the highest level the last six quarters or so. What has given the improvement? Product mix and price developments. How much of the improvement in EBIT margin is due to the new adjusted cost base for lower volumes, would you say? This is a very good question because it has, I would say, it has two or three different answers. And I will try to outline those. Number one is that in Q22 and Q23, where the component prices were extremely high and you can say that the margins on our value add our production is much higher than the margins on material. That means that when material content is going up, that will reduce our margins. So that is one. So that means that when the bigger part of our sales is coming from value add, we will have better margins because we earn money on production and not so much on material. So that is basically the answer to that. We have seen some large defense orders in the sector the past month. What is the lead times timing of defense orders that you received in 2024? That is also a very good question. Defense is one of those areas that you could get an order today with deliveries in 2027, for example. But currently, the lead time on defense orders are shorter, as I see it. Our defense customers want to have the material much earlier today than they did before the conflict in Ukraine, or conflict of war, I would say. So that has had an effect. So lead times on order to delivery is much shorter in defense. Now it's more of a matter of how quick can our customers get all their suppliers up to speed and how quick can they get the products out through the door. That is basically the limitations today. We have capacity to grow more in this segment. I hope I answered your question, Thomas, from one from Johan Boström. This was in Swedish. I will translate that. How does the capacity look in Finland? Can you continue to grow in your current factory? We can cope with the growth for maybe a year or so more. If the growth continues, we need to have bigger premises. And that is one thing that we are evaluating and looking at at the moment. So we hope and expect that we will get back to you with the plan for how we will cope with this in, say, the next three to six months. But it's very pleasing. We have been trying to increase our footprint in Finland with higher volumes ever since I started. Finland is a very good country. It's very similar to Sweden in terms of how customers are thinking and behaving and acting. So we have been a bit puzzled why we grow much faster in Sweden than we have managed to do in Finland. So currently, Finland is picking up that gap, which is really pleasing to see. I like Finland a lot. It's a good country to be in when it comes to production. What kind of acquisitions are you looking at? Which geography and segment? What should I answer there? I mean, as always, we are quite opportunistic. We are following a few companies that we think is really attractive. And then we are looking at the opportunities that will be coming out on the market. As always, there is a big, how shall I say, there's a lot of companies going out for sales. It's a matter of how do you, are we feeling that they fit in? How does the customer base look? We are a bit, how shall I say, we're much, we're eager to understand the customer base. We have seen some of our acquisitions that hasn't paid off the way we have expected with one or two customer dependencies. We're quite afraid of those. So we want to see that the acquisitions that we make has a broader customer base. That is quite tricky if you have a, if you take a company with maybe 300 million Swedish in sales. Normally that is built up by two customers of 200 million and then you have 25 of the rest. Those are really problematic because in some cases there is a long-term plan that they will be facing out one of those. And then we will struggle with filling that factor up. And with the weaker demand we saw in 2024, it was really hard to see, okay, which of those customer relations were bouncing back or which were facing out. So we were basically saying, we were basically stepping out of the acquisition market because it was so hard to evaluate companies. Now I think we're basically getting back on track so it's easier to follow. So we will, what you call, we will re-engage in this part. So I think that I don't want to say which segments. We still believe that Nordic is a good place to continue to acquire. I still believe that German speaking part of the world is very interesting. We have said that ever since I started and we have not delivered so well on that promise. US, I would say US is a part that I really think that it would be fun to be in. It's a market that is a lot of activities in. It's a lot of the government in there is supporting the market, it's supporting production, it's supporting all the areas that we want to be strong in. But it's also tricky. Often you sit in Europe and think US is one market. I would say it's probably 10 markets. It depends on which which state you're in. So it's very hard to say, OK, we buy something in the Boston region and then we can take the customers in California. That will not happen, as I see it. So if we go to US, we will have a firm plan of having more than one dot on the map, as I see it. Then we will need to make that as a segment and then we need to work on it as a bigger part of our group. I'm not saying that we'll not do that, but the journey is a bit longer. But we will get back to you on that. And if we find something interesting, we will, of course, act as I see it. But I would say that that is not I don't expect that US will be our next acquisition. I expect that we will do it somewhere in Europe without saying more. That was the last question. So if there's nothing more from the room, nothing more from the Web, I would say. Thank you for listening and we will meet again in April for those that are interested. Thank you.