Welcome everybody. I have the great pleasure to welcome you all to the first Capital Markets Day in the history of NOTE, or so I have been told. We have maybe up to two hours of information ahead of us, and I think we are all looking forward to hear more about this company. After Monday's very upbeat guidance, and yesterday, they also launched new financial and sustainability goals. I hope we will get lots and lots of interesting information. Our first speaker of today is Johannes Lind-Widestam, who is the CEO and President, and he will talk for perhaps 30 minutes. When he gives his talk to describe NOTE's business, and provides an update for the coming months and quarters, you're all free to ask questions.
A microphone will be available in the physical room here. That's the introductory part, and then Johannes will go into the current trading situation. After that, we will hear from Karin Nichols, who will speak about the Torsby operation. Following that, we have a small interview with Martin Deas of iPRO. NOTE acquired iPRO this summer, so we're looking forward to hear more from why that came to be. After that, it's back to Johannes again, and he will go through the financial targets, sustainability targets, and then a broad and open Q&A session. Before we hand over to Johannes, please remember that if any questions arise, he really wants to get them during his presentation if possible. Just raise your hand and we'll send a microphone to you. That's it.
Okay. Thank you, Martin. First of all, I would like to say the intention was that we should have Martin Deas here, but the current COVID restrictions prevented him from going. He's a U.K. citizen, so he would have had this quarantine stuff. Instead of that, we will have him on an interview. That will also be very interesting, I think. I'm very pleased to have Karin with us here. Torsby is what I call this kind of success story. It's out in the deepest forest of Sweden, as I call it. It's not that deep in, but it's a lot more trees there than here. It's gonna be very interesting to hear Karin's story. She has a bit of a voice problem, so bear with me when she speaks.
We will close the day with giving you some thoughts around our financial objectives and sustainability objectives, just to see why we came to the conclusion of putting them where they are and so on, and how we intend to reach them and so on. That part will be more about how we take it from here to 2025. As Martin here said, please interrupt me if you want to. As I already say, I will most likely answer your questions during the presentation, but don't hesitate to ask them whenever they pop up.
My introduction will be, I know some of you have followed us for a while, and for those of you, this will be more of a some kind of rehearsal, who we are and how NOTE as a group was founded and got to where we are. Some rehearsal for the rest. If you look at the business facts, the last 12 months, we have had sales of roughly SEK 2.3 billion. We are now a bit over 1.3 or 1,300 employees. We have nine production sites, three in Sweden, three in U.K., one in Finland, one in Estonia, and one in China. Our profitability for the trailing twelve months is up to 8.8%.
It's a bit higher for the year so far. Our return on capital is also quite strong. 24% is the best number ever. I can say that all our numbers are the best ever, so I don't need to repeat that. The group is going fantastic, so I don't want to repeat it too many times, but I guess that you will find it later on that I have done it anyhow. With that said, I'll move on. We have been listed on the Nasdaq Stockholm Exchange since 2004. As you see, we have a strong presence in what we refer to as Northern Europe, and we refer to those countries where we are present as our home markets. We are strong in the Nordics.
We are getting strong in the U.K., especially the acquisition of iPRO has strengthened our position quite significantly. We are very strong in Estonia. It's not a very big market. The Estonia factory is basically an extended arm to Sweden and Finland. Most of the customers have their home turf in either of those two countries. In China is a bit of a different story. When we started it, we moved a lot of production from the Nordics down to China, and then a lot of products were produced there and shipped back. Today, we can see that it has changed quite drastically, and today, most of the production that we do in China is actually staying in China.
Either that the products are sold in Asia, or that the next step of the chain has their production unit in China. We ship products, for example, for DeLaval. We are producing the boards in our factory, and we ship the boards to their assembly unit in Tianjin, and then they distribute the full products out in the world. That's a very common setup. Today, very few products are produced in China and shipped back to Europe. That's a big change that has happened over the last, say, three years.
It started with this, trading tariffs that U.S. put in, and then it has been enforced by the COVID and also with a quite strong, as I referred, as the reshoring trend that is very present in the world now, where many companies wants to have the production closer to their final assembly factory. I will come back to that later in the presentation. Some history. This is. I think if you follow the EMS industry, you need to understand how this industry have developed. I had the pleasure of working for a few different companies in this industry. I started in 1999 and worked for a company called Flextronics. I was there for four years, and that was in what I refer to as the first part of this trend.
At this time, many of our customers, like Ericsson, Motorola, Nokia and others, they wanted to get away from production. They wanted to develop, market and sell products, and therefore they sold off the production units. Often all these production units were sold with a buyout agreement, which meant that they committed to buy the same products from the same factories for a period of maybe three to five years, and then they could resource them wherever they want then. At that time, the general idea was that China was the answer to everything. China had some political decisions also that it was very beneficial to produce in China if you wanted to sell in China. Our customers at that time wanted to move out production.
Therefore, we can see that for those that remember, this is 20 years ago now, that Flextronics came from nothing, bought the first site in Sweden in 1997, had sales of more than SEK 10 billion in 2001, and then in 2004 it was basically gone. It was a very fast up and downturn. That is a bit how this industry has developed. In the first part that I would say ended somewhere around the financial crisis in 2007 and 2008, a lot of production was outsourced. Companies like NOTE, Kitron, PartnerTech, among others, were founded, and they were going quite well until the financial crisis. At this time, it was quite high, what I call overcapacity in the industry, so the pricing was quite weak for the suppliers.
After the financial crisis, some kind of consolidation time came, and that, I would say, were happening until maybe 2015 and 2016, where profitability in our industry was quite weak. We also saw that these swings in economy were very heavy on our sales. From, I would say, 2015, 2016, 2017, the industry has changed. A lot of new companies has been founded, the demand is a bit stronger, and therefore the supply and demand side has basically became more balanced. That, that is, I would say, one of the strongest reasons why our industry today are more and more healthy and earning more and more money. Because historically, production has been, or there has been much more production capacity compared to the demand.
Today, those two sides are much more in balance as I see it. From 2016, 2017, you can see that if you follow us, Kitron and others, profitability is climbing up a few percentages or a few points, at least every year. I would say that trend is sustainable and it will continue as I see it, because I will come back to that, but the demand side is continuously increasing. This is one of the reasons why our industry is much more healthy today than it has been in, say, the last two decades that ended somewhere in 2016, 2017. What we have done is we can see the yellow dots here is where we are still present. The company was, as everyone else, funded through a lot of acquisitions.
Then from maybe 2007, we had seven, eight years where we divested and closed a lot of sites. Then from 2016-2017, the group has the footprint we have today and the structure we have today, and we have started to add new companies and new sales into our P&L with first Speedboard in 2018 and now iPRO in 2021. It's very hard to say, but it looks much more stable and strong if you look a few years ahead. What do we do? We are a production company, as I call it.
95% of our sales is produced electronics, either sold as standalone PCBAs, meaning assembled boards with components or that the boards are then assembled into box build, which means that we are either putting some boards together in a metal box and ship to the customer, or we do the final packing as we do for today for many of the new customers that are in the Greentech segment. Say, the production we do, for example, to Charge Amps, we are producing the boards, we are assembling them to final products, packing them into the shipping boxes, and for them, we also do the physical shipment to them. That's very few customers that have went that far in the full value chain, but for them, we do that.
I would say that the trend for the new started companies are much more that they want to buy the full box build and final assembly products. While for the industrial customers, the older ones, they often buy the boards, and then they have the assembly units by themselves. It's a bit of a shift between the two different types of customers. Then we have about 5% of our sales is what I would refer to as services, meaning that we do industrialization work for the customers. When they want to introduce a new product, they often come to us and they ask us to go through the design. Is it designed in a good way, so it's easy to produce with good yield and so on? We then go through the bill of material.
Okay, have the selected components with the long expected life length. If it's an automotive company, have the selected components that are approved for automotive and so on. Those kind of things is what we offer the customers to do before we start. Because if you have started a production and then you need to change components, it's a lot of maybe tests, a lot of regulations that you have to follow, and it's quite expensive to make changes in a product after it's introduced to the market. This is a very highly appreciated service that we offer the customers. 95% volume production. Clear? Very good. Our mission, many companies in our industry have a lot of ideas of how to position themselves. We try to be a bit down to earth. We want to be a good supplier.
That's basically what we are offering. We want to be easy to deal with, easy to access. We want to produce with high delivery precision. We want to have high quality, and we want to be flexible towards our customers. That's basically our message, and that is how we try to position ourselves all through the vision and mission down to our valued words. This is also how we measure ourselves. We often, in our presentation, say that we are best in class when it comes to delivering quality. This is not just invented by us, it's something that we are measuring, and we are looking at how others are performing, and we are investing a lot of money and time into becoming good.
We know that if we are delivering on time, if we deliver with good quality, the customer will most likely ask us to quote for the next product and the next generation. If they see something that is working, that's much cheaper than to buy from someone else, and then you have to dial in that kind of production. This is so important in our focus today that we really ensure that we meet these requirements. I often get the question, okay, what will happen now with capacity when you grow this fast? We see that with new investments, with smarter ways of working, maybe some more shifts, we are able to grow much more in the current structure.
We're not seeing that we have reached a capacity roof at all today. If we got closer, like we have done in Torsby, we extend the site or we take on a new building. Karin will talk more about the success story we have in Torsby. That's one way of doing it. We know that we have more shifts to add if we need it, and we can exchange some older machines and equipment to get better output through the same footprint. Therefore, we can still grow quite substantially within our existing structure. That's also very important to keep in mind. When I started, we had some idea that maybe SEK 1.5 billion-SEK 1.7 billion was the capacity roof.
I would say that we can grow at least 40%-50% from where we are today without adding much more floor space. If we do, we will already have a plan for that. We have plans for several of our sites of how to extend them and ensure the customers' growth. Okay. Some history. Now we move into our current trading. Yeah, this is for those that follows us, this is up to Q3 this year. Very strong third quarter. It's a bit like this, that we ended last year, Q3 and Q4 in 2020 were a bit weaker. We were flat, and then we started Q1 this year with a small increase. We already at that time saw that the order intake was increasing.
Every month, I will come back and show the months later on in the presentation, and we can see that month by month, we were increasing. That trend has continued throughout this year. Q1, a bit mediocre, I think I referred to it on Monday. Second quarter, actually really strong, 30% growth. The third quarter now with 58%. We guided that we will be even stronger in the fourth quarter. How long can this continue, and will it continue this way? Now, Q3 and Q4 were a bit weak last year, so the comparable numbers are a bit weaker, but we expect 2022 to also be a very strong year for us. What you can see is that profitability is coming with volume.
Growth is so important in our industry if you want to reach better profitability numbers. If you can get more volume through the same fixed cost base, the natural fall-through of profit is quite high. If you have, I often say to the customers, if you have suppliers that doesn't grow, then you will eventually be faced with with price increases because their cost base will continue to increase with inflation. If they don't grow, they have not more volume to balance it out. What is the first that they do is to reduce the headcount, to reduce the cost base. When they cannot do that any longer, they start to increase pricing. Growth is very, very important to become or to maintain relevant and cost efficient to, towards your customers.
That's why we historically have always referred to that we should grow at least 10% organically, because then we know that we will absorb the cost increases without having the risk to be forced to increase prices too much to the customers. We can see that we have basically a record on all lines, 9% so far is. 2020 was the best year ever. 2019 was the best year before 2020. This year will be much stronger. Q3 is the best quarter ever, and now we just guided that Q4 will be better than Q3 on all aspects. It's just a remarkable development during this year. This is also interesting, our customer segments. For those that remember, we changed our segments for this year.
We saw that the Greentech part of our business was increasing quite fast, and we wanted to give a better view of how we see the sales. Now we see that the Greentech area is growing significantly, and we have in the third quarter, I think the number was 182% in growth. We also know that iPRO, that we will hear more about later, has their main sales into this segment. They added a lot to the growth. Also the old NOTE are growing with what we discussed yesterday, almost 92% for the year. Our organic growth in the Greentech area is about 92% for the year. What we also see is Medtech is growing.
Now I would say that if you look at our growth next year, Medtech will be one of the fastest-growing segments together with Greentech, because we have won a lot of new orders in this segment. Communication has been a quite weak segment for a few years. It's a lot of, like, Wi-Fi equipment that is installed in different applications. During the pandemic, it has been much harder to install these products because the installers has basically not been allowed into the buildings. Therefore, those customers has been quite low for us. We see that it has changed a bit, and we expect this segment also to continue to grow during the near future. Now we have our strong Industrial segment, where we have a lot of different products in different applications.
We also see that the underlying trend there is very, very strong. We also win a lot of new customers and orders to existing customers within this segment. We also believe that that will grow. We see that all four segments will grow quite good in the near future. Near future, I would say the foreseeable future in our world is basically three to five quarters. We can see we have been awarded new programs, but we don't know exactly what the sales will be in them. For at least a year, a year and a half ahead, we have quite good visibility in you know in how our business will go. If we slice it in another way, we see we measure Western Europe, but this is basically all our sites except China and Estonia.
In these segments, we also have IPOs, so the growth here of 36% is a bit boosted by IPO. I think it is, like, 20 without it. And then we have in this segment, you can see that we have had quite good profitability over the last couple of years. We were at 9.7% last year and 9.9% year to date this year. Where we have seen a big improvement and why the group's result is so much stronger today is that we did a lot of investments in China and Estonia in 2019 and 2020, and those have paid off very well, where we see that we have grown, say, Estonia, for example, we will have maybe 50% higher sales this year compared to 2018, and we are a few people less in the organization.
The automation investments that we have done there have really paid off. When that happens, you see that the profitability comes really strong. It takes a few quarters until you see the effect. Today, Estonia and China is much better fitted for the business that we do. When I started, I saw that we have treated them as what I refer to as standard low-cost units. I think they should be treated as a standalone factory and have the same type of equipment and same automation ideas as we have in Sweden and Finland, because eventually the cost base will come up, and then it's much better to already be efficient and have all the automation that is needed to grow the sites with a good profitability.
Because people are getting more and more expensive in the low-cost areas in the world. For me, this was really important. Today, if you work in Estonia or in Norrtälje or Torsby, it's very similar in how we do things. The same kind of equipment, the same machine types, the same kind of automation ideas, and so on. Very, very good. I like all the customers should recognize themselves wherever they are in the group. This is important for us. It also pushes up the profitability, which is as important for investors, or maybe more important. Importance is that if you see the headcount, we grow like 30% in rest of the world.
It's actually a bit more if you just take the internal sales, and then we have added, yeah, only, what can that be? Yeah, 8-9% in headcount. Really, really good. Yeah. It's hard to pick out the highlights from the best quarter ever, but still focus on quality and delivery performance, really important. This year, we see a declining trend of delivery performance, a lot to do with the challenging situation on the component market. When we ended 2020, we already saw that it was a bit, we saw that it was getting more and more constrained, and we started to add inventory to be able to meet this challenge. But that's like a very small cushion. It helped us through basically Q1.
Q1, we still had very good delivery performance, then it has started to decline over the year. Today we are basically chasing material together with our customers. We have daily or weekly meetings together with our customers on how we prioritize, how we can get all the material. Can we do redesigns together to ensure that we can get more availability on component and so on? That is the work that is ongoing every day with most of our customers. This is why many companies in our industries are going to the market saying that we will not meet previous guidance because we don't get components. We've tried to quantify this in the third quarter, saying that about SEK 50 million was the actual delayed value that we were supposed to deliver in the third quarter. That's a bit of an,
It's a quite high understatement because we had already, when we got the orders, confirmed it further into Q4 and also into next year. The actual delayed value was much higher if you would look at what the customer really wanted. We also have big problems in this area, even though our numbers are looking very good. Order intake. This is also some part that I often say that companies are reporting this in a very funny way because today our order backlog is basically twice as long as it was one year ago. I could easily say we're 100% up in order backlog, but what is supposed to be delivered in the next quarter may not have changed, and I would still be truthful.
We ordered in the second quarter. We changed how we report this and say we only state how much our order backlog has increased for the coming two quarters because what is further back is basically a replacement of forecast. It doesn't add any new sales. We see longer because we have longer order horizons, but we will not deliver more in the coming quarters. We wanted to be more clear on how we look at order backlog, and that's very few in our industry that have done this. Most of them are still reporting the gross order backlog value. This is something to keep in mind when you look at other companies, I would say. We have talked about its strong market. All our home markets are growing very well.
It's especially strong in the new areas like customers like Plejd, Shortram, Ferroamp, and these customers. iPRO, you will hear of later, are performing higher than our expectations. Really pleasing to see. We talked about the component market. Return on operating capital up 24%. It's also, I think, our strongest quarter ever for this. What we announced on Monday morning, we felt that we had guided with 50%. We see that we will reach above 60%. It's very hard to quantify. We have these challenges with components, and it's also Christmas time is a bit difficult. Our customers doesn't want our products shipped to them if they don't have time to ship them for the next step.
Sales bit from, say, December 20, 2021 is very, very low because customers doesn't have any value for receiving the goods. All of a sudden you can have a lot of orders, and then we push it out. We will reach above 60%. That's what we can say. I expect us to be a bit higher than that, but that's what we can guide you with. Also that our profitability will be the strongest ever that we can see in our books today. We're quite confident in that we will be at this level that we guided with or higher, as we stated. This is our trend, how we have been looking for the last five years.
We see on the graph, the blue graph, that our sales has more than doubled in these five years. We have doubled in three years, basically. That is if we include the fourth quarter that we have guided with. We also see that the operating margin is coming with the sales growth. It's not always a one-to-one comparison because some quarters you have to do some investments and you might have to do some restructuring that costs you some money, but over time, you will see that this trend will continue. That's how we see it, at least. If you look at the market, as I see it, we will see the market, especially for electronic production in Europe, is expected to grow really strong.
The last report I read was that for production in Europe, it's expected to grow 7% per year until 2028. That, if you look backwards, everyone has said that, yes, electronics is a strong market. It grows 2%-4% per year. It was upgraded to 3%-5% globally per year. Now the expectations is even higher. That means that even if we are not gaining market share, we should grow 7%. Just if we don't do anything better than anyone else, this is what we would expect. We expect that with this strong momentum we have, that we can do even better. That's one of the basis why we wanted to go out and give you a target of where we want to reach within a few years time period.
We also know that growth can be a bit between quarters and so on. We start our production, it can be delayed for different reasons and so on. It might not be a straight line, but we're gonna see growth in this according to this trend for the coming years. That's my expectations. It is also an outsourcing trend. If you look at new companies, the likelihood that companies like Charge Amps, EV charging boxes and so on, that they will start factories to do this is very unlikely as I see it. There will, of course, be one or two that do it, but most of these companies will outsource the complete production. That's my firm belief. The part that is outsourced are gonna grow a bit stronger than the trend of production.
I also believe that this trend that we're reshoring back to Europe is actually stronger than we are seeing today because freight cost is going up, pricing in Asia is going up. The extra cost to produce in Europe is getting smaller and smaller in relation to the savings that you do to move to Asia. I also believe that the trade tariffs will not go down in the near future. For me, I think that those three trends will be beneficial for companies like NOTE and others that have the base of the production in Europe. Yeah, if you look at what is different within NOTE and others, we're quite keen in investing in new technologies and in how should I say, capacity improving investments.
That this means that we are growing much faster than our headcount. We're growing much faster than our cost base, and that will continue to pay off over time as long as we can keep the growth above 10%, quarter by quarter. I would say that that's. If you are above 10%, then we should continue to earn more money per in or increase our margins. If we're below 5%, then it becomes a bit problematic. Somewhere between there is what I would say, the border between flat margins or increasing margins. We believe that this is very, very strong for us. We also feel that our diversity between the segments are really good for us. We know that Greentech will grow, but it's a lot of different companies also in this area.
That complemented with a strong presence in the industrial field, we're very comfortable that the mix between these segments are really beneficial for a company like us because we don't have many sites that are dependent on one or the other segments. Most of our units have good presence in at least three of the segments. We have a good balance between the customers also within our different production units. Yeah. I will stop there, and I will hand over to Karin. Is there any question?
Yes, three, actually.
Okay.
Yeah. I have questions from the internet as well.
Okay.
Sorry.
You're very popular, Johannes. Questions from this side. Andreas Brock from Coeli. I have three questions. You know, when you're growing like this, how do you ensure quality? I'm not thinking about sourcing of components. I'm thinking about the quality of your output. How do you measure quality? Do you work with Six Sigma, you know, black belts, et cetera? Second question, when it comes to CapEx growth, you know, how should we think about CapEx going forward? Is 10% of sales or what, you know, what kind of ballpark figure? My third and final question. You know, in the U.S., there's huge talks about labor cost inflation. John Deere, I mean, there are massive strikes to increase labor costs by 10%, et cetera.
You know, how do you see labor cost inflation in your factories here in Europe?
It's a mix, I would say. We have, for example, in China, Estonia, we have traditionally seen salary inflation, so maybe 5%-9% per year, while in Sweden, Finland, and traditionally U.K., we have seen salary inflation maybe 2%-3%. What will happen in the future is very hard to predict. My expectation is that U.K. will be a bit like U.S. They're pushing up the minimum salaries. That will have an effect on us. We don't have minimum salaries, but if they are pushed up, then the level just above that will also be pushed up. I would say that U.K., we will probably see a salary inflation of maybe 4%-5% in the next two, three years. Sweden, it's hard to say.
We have an existing agreement between the parties, and that will go out in April or something next year. My expectations is actually that Sweden will continue to be a market that is fairly well in balance. My prediction is maybe just below three, maybe. The same goes for Finland. I don't think that Finland will have any differences than they have had in the past. It's a mixed bag as I see it. What we do to offset that is, of course, to continue with automation and ensure that we are offsetting the salary increases with more, with better throughput in our factories. CapEx, I think just to mention a number, and now I have to do the math in my head.
Last year in 2020, we had CapEx of around SEK 60 million, and we were turning, yeah, just shy of SEK 2 million, so maybe 3% in CapEx. This year, I think the forecast is like 80 or something, and we will be at 2.6, roughly. My prediction is that we will continue to be at this level, maybe 2%-3% in CapEx, maybe.
Very limited. On my first, how do you ensure quality? You know, how do you when you're growing like this?
I would say that this is probably the most challenging of your three questions. Because when you grow, you have to add people, and then we have to add people that may not be as experienced as the ones that you have. We work very, very well with that we add in the lower end of the scale, and then we develop the staff that we have. Karin here in Torsby are a very good example, where we have a very limited community. We bring in a lot of people directly from school, and then we grow together with them, and they get more and more responsibility as they grow. That's one of the ways we try to do it.
What you can say is that you take in more people and they are starting at the lower end, and then we help them to develop to become better and better quality-oriented. Then we have to work with our processes to ensure that you cannot make the mistakes.
Excellent. Thank you so much.
Thank you.
Johannes?
Yes.
I think you said something to the effect that your visibility into the future is up to five quarters.
Yeah.
Could you elaborate a bit on how you internally project that, and how do you reason with regards to the very high inventory levels in the sector as a whole?
What we can say today is that we... If I would take all our factories and combine them and say, "Okay, this is the orders and this is the forecast," it would be very easy to say, "This is what the sales will be." That would be the correct answer if we knew what kind of components we would be able to source. We know what the customers wants for the next, I would say, five quarters. The question is how good availability will we see on the component market. When we look at the trends, we are seeing what kind of order and forecast do we see with the customers and the programs that we're producing.
Then we try to make some risk analyses of, okay, with these orders, what do we expect to get from component availability? Okay, well, how will that transfer back into projections of sales and profitability?
Okay. Yeah. Thank you.
I would say that next year we have a good visibility of.
You are very good at sourcing components somehow, it seems. I guess some of us saw some competitors in the sector who issued profit warnings recently. What is the special sauce?
We have our.
Sorry to put it bluntly.
Sourcing director or head of sourcing here with us. He can probably elaborate a bit more on that after this. But I would say it's you have to be very far in advance. When we saw that this market was squeezing up, we tried to get orders from the customers up to maybe 12 months ahead. We know that suppliers often prioritize if we have a fixed order from our customers rather than a forecast, then we'll get better allocation on those components. So you have to work far in advance, and we have to work closely with the customers to ensure that they also do these firm commitments and also chase the suppliers from their end. Then combined, we can get some more components.
Yeah. I got another question here from the interwebs with regards to your forecasting abilities, since you had this long discussion on wage growth in different countries. Here is a question, I think it's from Norway, who asks: Do you have any guess when the component shortage could start to ease? I mean, some of the order intakes from the supplier of components must be due to massive pre-hedging of sorts.
Yeah.
Do you dare take a guess?
First, I would like to say that whenever shortages occur, because it has happened sometimes already in this. We had a very massive shortage situation in 2000, 2001 as well. As soon as there are signs of it, everyone orders more, and then the shortage just explodes. You get from good availability to allocation within maybe six weeks. It's a very short timeframe when it happens. Normally, if you look historically, the resolution has been as fast. It's critical, and then you say, "Okay, now it starts to open up," and then good availability, because then many companies are, so to say, freeing up their extra orders for filling the inventory. Where that is in time, yes, that is the big question.
What we can say is that we see signs that the production volumes of the semiconductors are increasing, and that is the first step towards getting this market in balance. I have earlier said that I would say my best guess is that we will see some good signs in the second quarter next year. That's my guess. It's completely uneducated, but that's what I would do. That's my feeling that it will start to open up a bit.
Yeah. Thanks. Any more questions from the audience?
Okay. Now I hand over to you, Karin Nichols.
Thank you. My name's Karin Nichols, and I'm the MD for Torsby. You have to excuse my voice. I'll try as hard as I can to make it understandable. As you can see on the map, Torsby is very near the Norwegian border. Johannes did say that we're in the middle of the forest. I don't really agree with him, but more or less maybe. Looking at the facts of Torsby has been an electronic producer since 1965, so we have a long experience. The last 12 months, we've had SEK 450 million in turnover. We have about 214 employees, whereas 60 are white collars.
We have a profitability of a little bit more than 10%, and we've been in the group since the year 2000, which is we're one of the first facilities that were into the group. We have a nice modern facility with a lot of different machinery. The thing that makes NOTE a little bit, I think, different compared to the other NOTE facilities is that we have most of our products are electronics for harsh environments. This means that the products are used in either very high climates or very low, or even climates that are changing from low to high. Products can also be used in environments where it's very salty, humid, dry, dusty. This means that the quality demands on the products are extremely high.
The processes that we do have in place are, as Johannes has said as well, very similar to all other sites. We have SMD lines, which are the machines that put the smallest components on the boards. The majority of the components are set in the SMD lines. We also have selective soldering lines, which place the little bit larger components, and which are an efficiency goal really to instead of do it manually, do it by machine. We also have box build potting coating with experienced personnel. We've invested in automatic depanelization. What's that? All the boards that we do produce come often in panels, so you can have a panel from the beginning with six boards, and all boards have to be cut out of the panels.
This is always done manually and takes lots and lots of time. You can, in fact, do this automatically with all different solutions, and we've done that. We have three or four different solutions to getting the boards out of the panels. We also have worked a lot in recent years to be able to secure the quality of the products. To do that, we have X-rays. We have automatic optical inspection, both in the SMD lines but also in the selective soldering lines. This is all to make sure that all the components are exactly where they're supposed to be and that the functionality is 100%. We have three different sorts of traceability levels on our products, all towards what the customer wants, and we have an efficient warehouse management system.
In order to get all of this in place and to meet the demands of the customer, we have to have some certifications in place to be able to meet the demands. We have, of course, ISO 9001 and ISO 14001. We have a medical certification, ISO 13485. We are licensed for FDA, which will let us produce products to the American market. We also are compliant with IATF 16949, which is not always but often a demand from the automotive segment. We are quite large in not the car production, but heavy vehicle products. We have strong Swedish and also international growing customers. We have more or less the same turnover if you look between the industrial Medtech and Greentech.
We have a very nice risk mitigation between the different segments. Looking at significant organic growth expectations, we have had a lot of incoming projects in recent two to three years. Projects and the products that are in the projects usually take a little bit longer to get into place if you have harsh environments due to the requirements of quality and the requirements of technical solutions. Within looking at our current customers, a lot of the projects have started up one or two years ago, and they're ramping up nicely. Funnily enough, all of them have come in at more or less the same time, which is giving us a very nice growth. You can see between 2016 and 2021 that we've had quite nice growth.
From now and going forward, I can see at least 20%-30% growth every year, and I'm quite certain that we will double our turnover within the next three years. This is just looking at our current customers, no new customers at all in these figures. Hopefully, we will achieve to get one or two more new customers. I can assure you that these figures are stable. Looking at the orders and the backlog that we do have into our systems, we see at least 18 months. All our customers have been placing at least 12-18 months firm orders to be able to help us with the material situation. We have quite a good look into the coming 18 months.
We have recently expanded the facility. We've expanded it with 2,000 sq m, this giving us much more production sq m. We have also invested quite heavily in the recent two to three years, a little bit more than SEK 70 million. We've invested in two SMD lines, which is, as you all know, the base of the production for suppliers that produce electronics. We have also additionally one more line coming in Q1 2022. We have built and used a cleanroom, class seven for one of our Medtech customers. We are installing AutoStore, which is an effective management stock handling system. This is for two reasons. The first reason, of course, is to be more efficient.
It's much easier to get out the material from this AutoStore than it is if you look at more normal ways of stock handling. The main reason I think is that the AutoStore is much more compact and much higher. What we've done is using an AutoStore, from 500-600 sq m of stock, we've been able to push it into 300 sq m of stock, which means it's giving us 200-300 more sq m to use as production area. This is key for us. We've also invested in new lines in selective soldering. We have ongoing recruitment and training. We have in fact employed I think between 50 and 60 this year, and still growing strong in employment.
Of course, to be able to achieve this growth, we have a very strong leadership, trying to get state-of-the-art factory. Thank you. To be able to meet the demands from our customers. Now, our customers are very demanding. They have products that have to survive harsh environments, and they have to feel secure and have to believe that their supplier can handle the production. The growth shows that they have the trust in us, and I'm very happy for that. The key factor for this growth isn't the strong leadership. The key factor of this growth is the continuous improvements done every month, at least 25 improvements every month throughout the whole organization, every month, every year after year, all these improvements from little to large. This is why we're growing.
That's my point of view of our growth. Here is a couple of statements from our customers. We had quite a lot of quarterly business reviews last week. One of them was from Parker Hannifin, which is a customer within the forest industry. Anton, his quote was, "NOTE Torsby is a business partner that always takes the extra step to enforce a smooth day-to-day business by being flexible, transparent, and has a strong sense of dedication for manufacturing of electronics. Great communication and support from NOTE Torsby's technical departments." This is one of our largest customers and one of them that are growing the most. Breas is one of the other customers, a medical customer that we have, and they have products with non-invasive support for breathing.
Evan came to us last week, and he stated, "I have audited NOTE Torsby in 2019 and 2021. Now, I'm very impressed by how well-organized the quality management system is. It is really satisfying to see the strong quality awareness at all levels of the Torsby organization." And for a QA that's quite a nice comment. And last of all, yet another large Swedish medtech company. "Great communication and technical support drives our project forward, helping us to get our product to market." So these are quotes from our customers. And last of all, I'd like to show you a little film. It's four minutes long. Just to show you what our plant looks like. Okay, here you can see the outside.
The extension of 2,000 sq m is not on the film because this has recently been done. You can see, as Johannes says, there are a lot of trees. This gives us a potential to be able to build more facility. This I can see as one of the most positive aspects of being in Torsby. Of course, first sight of our factory is always the most important for the customers. The factory always has to seem tidy and pleasant and well organized. Here you can see all the prototypes we have ongoing at the moment. We have, at the moment, 120 different prototypes ongoing.
You'll see in this film little bit of different techniques to be able to secure that incoming material is exactly as the specifications say they should be. Here you can see one of the SMD lines. This is the machine that puts the smallest components, the majority of the components. When the boards are finished here, they go through an oven to be able to get the components to be fixed on the boards. Here you have the automatic inspection. Here you have a soldering machine. Doesn't look much, but these machines are fantastic, looking at the efficiency and the quality levels. By using these and the SMD lines that we have, we have a yield of 99.6%.
Here we have the robots that put blue yellow and even a coating. Mostly we do this through the robots. We can also do it manually. Here is a robot solution that, in fact, is quite advanced. You can see here a board, a panel with about 12 different PCBs. You see a stamping machine there that's pushing the boards out of the panel, and the robot sucks up the panel and the boards, throwing away the panel into the dustbin and putting the boards into the blister, which is in a box, eventually, and will be sent to the customer. These are products that are to the automotive sector. Here you can see one of our 350 different test equipments. All products are tested at NOTE.
Mostly we have a functional testing and we have a final testing. We have a department, in fact, that works with the development of test equipment. Here you can also see a test for one of our other small boards. This is what I have to say today. Thank you very much for that. Okay.
Is there any questions for Karin Nichols?
Of course there are.
Martin.
Oh, let's start with audience.
All right.
Yes, please.
Thank you so much for a great presentation. You know, very impressive, all these, the X-rays, the qualification levels, FDA, et cetera. I mean, it must have taken quite a long time to get all these qualifications. Is this, you know, normal for the NOTE factory, for the other kind of factories? Also how much do you ship to the U.S. today that is, you know, FDA required? Is that a significant part of your business? I mean, I can't think of anything that has higher quality requirements than the FDA.
Well, in fact, we have, let's see, two or three customers within the medical segment that have products that are shipped to the USA. Within them, we have at least two or three products that are ramping up at the moment. I would say, in fact, looking forward, maybe if you look forward 2-3 years, maybe we'll have 10% of our volume going to the U.S.
Excellent. Thank you so much.
Andreas, I can answer the other question. We have, within our factories, we have, we are selecting which sites that are Medtech sites, and there we do the this Medtech certification. Also we do, if we work with automotive, we work with the being compliant to the automotive standards. If we don't work in these segments, we don't do these certifications beforehand. A difference, I think we have four sites today that have the Medtech certification, for example.
One of the reasons why we have many of these certificates is because we have customers within a lot of different segments, and we have products for harsh environments, so the quality demands are high, and that's why the certification level.
Okay. Some more questions. I noticed that it looked like you were predicting a 33% jump in 2022 from 2021, and you're going to double revenues for over the next few years. Is your planned or implemented production capacity enough to allow for all that kind of growth?
Yes, I think it is. The figures that I've shown you is with the current customers, so I'm not planning in, well, not many at least, looking into new products. It's products that we have in fact, in the factories that are growing. So the need of course, we need more production area, of course. I think that we'll be able to cope until at least 2024, 2025. As I said earlier, that we have the capacity to expand, and when the need is there, I'm sure we will.
Thank you. Another question which may be on top of someone's mind. I know reading the media over the last couple of quarters, there's a lot of discussion about labor shortages, especially in the northern parts of Sweden. Now, this is not necessarily the northern parts of Sweden, but how do you work to ensure skill supply in this wooded region, as Johannes argued it was?
Well, it can take a little longer to find white colors. Blue colors, we haven't had that problem. But I can see only the positive side of being placed where we are at the moment is that when we do employ people, they stay, and they get more and more experience, and that's probably one of the reasons why we're expanding and the customers love to place their products with us, is because we have very experienced personnel.
I also got a question now from the internet again. It was a little odd question, but I think I should pass it to you, and I think it refers to the wooded area again. There's one fellow here worrying about a fire in the Torsby facility.
I hope not.
Too many trees for him, I think. He was wondering how are you working to ensure fire safety? If you can say something short to that effect, which will calm this guy's nerves, I guess.
Well, of course, being such a large company that we are, we have regular fire.
Drills?
Drills. Of course, the facility we have is always looked over and tested for how to handle fire issues. I can't see any problems there at all.
I can also comment on that, Martin. Because we have in the extended factory and also in the old factories, we have divided it into some different rooms with fire doors and so on. If it's a fire, it will automatically close and seal off the areas. If we would have a fire, it would affect only the affected part of the building.
Okay.
We have, in fact, five different cells within the production areas that are closing. If there's fire in one of them, the others' doors will close.
Automatically. Okay. Thanks. Any more questions?
Okay. Thank you.
It's time for a visit from the U.K. There he is. First we heard some proper British English. Now I think we have some other interesting dialect with us here today. This is Martin Deas, who sold his company, iPRO, to NOTE this summer. He's here to answer all our questions, I hope. First question from Martin, the moderator: Why did you sell your company to NOTE?
Okay. Well, firstly, good morning. As Johannes mentioned, I'm in the U.K., so I couldn't travel to Stockholm because of travel regulations. Anyway, why did I sell iPRO to NOTE? It's a good question. I think I could answer by giving you a little bit of history. Before the acquisition in May 2021, iPRO had actually been trading for about 20 years, and had developed from being what we would call a low-cost sourcing or logistics company, and had developed into a manufacturing solutions business. It's important to say that we were not manufacturing printed circuit boards. These were all outsourced. By 2019, we'd grown to about, and I'll quote it in U.K. pounds here, just over GBP 15 million.
Actually when we sat back, we could actually see some challenges. You could maybe say weaknesses, but we could see some challenges ahead for ourselves. Actually, when I concluded how we were going to address these challenges, I actually came to the conclusion that iPRO would be better positioned as part of a bigger group. I can say there was probably four underlying reasons for this. Firstly, some of our existing and some of our potential customers were looking to scale up, and EV is a good example of that, looking to scale up in the future, and that clearly pointed them a little bit in the direction of companies that might be a little bit bigger than iPRO.
More importantly, probably, they were looking for suppliers who were probably able to operate on multiple manufacturing sites. iPRO could only operate on one manufacturing site. I deemed that to be a risk. Of course, NOTE are able to satisfy that concern about operating on more than one site if the customer requires that. I would say the second point would be that the iPRO did not produce its own printed circuit boards, and that actually is where the bulk of our costs are. That was deemed as a bit of a weakness against any competitors. Also, Johannes mentioned this as well, about leverage on component prices.
We would expect a larger company to get better prices, so we deemed that we were probably not good enough in that respect, and nor were we able to invest in PCB assembly ourselves. Through the acquisition, I hope I've turned an issue, a weakness, something we felt we weren't strong enough in, into a strength through NOTE. The third point would be access to low-cost manufacturing. Of course, we've talked about salary inflation today already. Yes, it's a concern, and Johannes again mentioned about 4% wage inflation in the U.K. That's a fact. I think our customers also want access to lower cost manufacturing if that's possible. That was my third point. My fourth one is simply one of funding.
Obviously NOTE have got access to financial or are financially strong, and joining up with NOTE actually gave us access to better financials. These are four reasons why I thought that iPRO could be stronger as part of a larger group. What happened after 2019, actually, our GBP 15 million sales in 2019 became GBP 21 million sales in 2020. In our year, which is slightly different to the NOTE year, at the time of acquisition, which finished in August 2021, we got to GBP 30 million. In fact, just over GBP 30 million . You can see that the concerns I had of growing and some of the challenges that were facing us actually came true in terms of our growth.
Actually, looking about moving away from being a privately owned company into a bigger group was in my mind the correct decision and actually remains the correct decision. There's a lot of background to why I sold iPRO to NOTE. I would also mention that I was also conscious about my staff. I think I found a good fit for iPRO within the family of NOTE for my staff. The decentralized business unit for us, the way that decentralization works is very good.
I realize this is a long answer to a short question, but one last important point I want to stress is that I really believe that iPRO and NOTE have the same or very, very similar approaches to customers and quality. It's very important for me that we listen to customers and we act on customer requirements. I see a lot of synergy between iPRO and NOTE in that respect. That's my answer to your first question.
Cool. Thanks.
No worries.
I see from the slide here that you had organic growth of 40%.
Yeah.
I would surmise that a lot of that is within the EV charging systems. Could you elaborate a bit on how that came to be, your focus on EV?
As I said, originally, iPRO grew up a little bit focused on sourcing and logistics, particularly from Asia. Around 2014, we had some opportunities to move into manufacturing. I'm talking about assembly when I talk about manufacturing. We looked at what markets we would like to try and target. Obviously, at that point, one of the emerging markets was EV. Very small market at the time. Several years on now, we've got involved in the EV market. As Johannes also said, customers are coming to have the whole product made, and the product delivered to their end customer, not necessarily to the customer, and we are able to do that.
Today we are manufacturing four products, four EV products for two of the leading EV manufacturers. Even better news is that in January 2022, we'll start manufacturing for a third manufacturer. This is an on-street charging product, which is one of the market segments that will grow very quickly. Then early in 2022, our plans today are to start up with a fourth EV customer. Yeah, I think we've got a very strong position in EV right now. We're also moving into another emerging sector, and that's one which we would call e-mobility. Very similar in many ways to EV, but for us, that means electric scooters.
Not manufacturing scooters, I hasten to add, but manufacturing the battery charging infrastructure by which the scooters are recharged. 2021 was our first year in that, and 2022 looks even stronger. Yeah, to answer your question on the strength of EV in our business, I would say that between EV and e-mobility probably accounts for 60% of our revenue.
Thanks, Martin. Seems like Johannes is getting ready to speak again.
I'm just standing here because it's soon to be my turn. No stress.
Do you have any worries with regards to selling iPRO to NOTE? Is everything just happy and dandy?
No, I'm very comfortable with it. It's important that I think I've found a home for iPRO in a company which was not too large. NOTE's decentralized approach works well. So far it's been good.
Thanks.
Okay. Any other questions from the audience? Andreas, feel free. If not, I say thank you very much, Martin. I have to say, the first half year has been really pleasant to work together.
Thank you.
Okay. Should I move on? Now we're heading into the areas why we are here. Now you have had some background. We got a very nice presentation from Torsby, and I would like to just get back with a few comments on the Torsby presentation. When we look at the next year, Torsby is the site where we have the longest visibility of customer orders because they are more complex than other products, and the site has the most advanced products. The big step in 2022 that we see with maybe 35% growth, we are quite comfortable that we at least have the orders. We have a good chance of overachieving that target. We are even within the current component market.
We have to balance pros and cons or opportunities and risks. That's why we ended up at this number. Torsby has a really strong position, and we are growing very nicely with a few of the largest customers in the group in Torsby. For me, it's very good because I know that Karin and the team are constantly developing the staff, constantly pushing us as a group and the other sites to become stronger in the technology that we use. Many of the things that Karin was showing in the video is now being mirrored into the other sites.
Torsby has, throughout my time and also before that, been the, I would say, technology leader in the group and are always pushing the group management to be stronger and move into new areas of technology that will reduce costs, increase quality, and increase efficiency. I just expect that we're in the early phases of that journey, and I expect Torsby to be even stronger going forward. With that said, we move into some financial targets. Here I show you our sales in 2020 and 2021 divided by the month. As you can see, we said that 2020 was a quite strange year. First half was quite strong and second half was a bit weaker.
For those of you that follow us knows that our strongest sales is basically August to November. That's our four strongest months, and then March and June are also very strong. That's our normal seasonality trend that we see. What we can see is that this year started, as I've said before, first quarter, not weak, but not strong, 6%-7% growth. Second quarter, we have April and May, which are quite much above 2020 numbers, and then June, very strong also. We have to remember that was the first month with iPRO. Then we see that the gap between 2020 and 2021 is increasing by the month. September was by far our strongest month ever. Now, we also saw that October, November also at a very high level, and that was why we increased our guidance.
What we see is that if you look at the red line, we see that 2021 started at the same level as 2020 ended. We expect that for this year as well. We will start 2022 at the level where we are when we are ending 2021. A bit complex to say, but you understand my feeling. This is how we measure it. If we would continue the line for how we see 2022, it would start where we end 2021. Therefore is also why we already in Q3, we guided that we are expecting a 50% increase also for Q1, because we have the strong order book, and we know at which level we will end this quarter.
Perfectly logical. You also see that the delta within the quarters, that we are increasing by the quarter, and it's we should not draw the line continuously from six, 28, and 58, because then we will soon end up in the sky. We are seeing very positively on our coming quarters' sales. This is also an area where we have talked a lot about existing customers. That is our base and our foundation for the group. If the industry is growing with 5%+, and if we don't lose any customers, we know that the base will be constant or slightly growing. We add new programs. With existing customers, we add new customers. Those two we have all communicated over the last years that we should have at least 10%.
We have reached somewhere just shy of 16% year-over-year, also including 2020 with the COVID problems that we saw. Then we have added acquisitions. I like to add in a few different phrases, and I have something that I call retention rate. How often do we get the next generation from a customer? What I mean with that is that if you produce a computer, for example, that is replaced with another model within a year or two. In our industry, it's normally like 10 years between different revisions. If our retention rate is in excess of 95%, we know that this big dark blue square is never getting smaller because we win the next generation. Our retention rate today is in excess of 95%.
It's actually higher than that, but it's a bit tricky to measure, but it's in that region. Say that we would have 90%, then we would lose 10% of our sales every year just because the customer choose to put the next generation somewhere else. We would have to first offset the loss before we could grow. Now we see that our existing base is quite, how should I say, stable and slightly growing, even if we don't gain any new programs or new customers. We have a very strong track of winning new customers and also attracting new programs from our existing customers. Therefore, I would say that the existing customer base is growing very nicely, and then we add very good new businesses from new customers.
This all in all have been growing with 15% over the last three years. Now we have added Speedboard in 2018 and iPRO. The overall growth for the last three years will be around 100%. That's how we see upon growth. This looks very, how should I say, schematically made, this picture, but this is how we work. We work a lot in the different areas to ensure that we manage to get the growth out of each of every of these squares. Acquisition is another area that we talk quite much about, and we are not intending to become this fast acquirer. We want to acquire businesses that add value to any of our strategic objectives.
If you take iPRO, for example, they added the strategic area of fast-growing Greentech segment. That was one of the biggest reasons why we bought them, not only because we like Martin and saw that his business was performing well, but he was also focused on the area where we believe is gonna grow faster than the electronics industry as such. It was very important for us to get more access to these customer segments. Today, with our growth, we are also seeing that there is a trend, okay, where should we produce parts? We are seeing that it would probably make sense for us to grow into another Eastern European country with a bigger production footprint, so we could expand and move more business to that area.
That is a very strong demand from our many of our customers to have that opportunity to have another Eastern European site besides our Estonia one. That could be one other area where we want to grow. It could also be that we find an opportunity to move into one more geographic region, for example, like Germany or the Benelux or somewhere else. Then we get access to that market and can grow from there and do what we intend to do with iPRO. Not only be present, we can also add the low-cost manufacturing and the bigger production footprint that these companies cannot offer. When we buy something, it has to add into either one of these three or four buckets or strategic areas that we want to become better at.
We could also end up with what I call or a more an opportunistic approach, where if we get another company that are performing well and we can see that we can acquire them at a quite low valuation, we might do that even though it's only an extension of what we already do, because that makes good shareholder value.
Johannes, could I interject with a question?
Yes.
That is on the topic of acquisitions. I have two questions. First of which is, do you have any prospects in the pipeline that you could hint about.
I will not hint about who they are, but we are in dialogue with some companies, and that we are constantly in. At the moment, there is a lot of companies that are available for acquisition.
The second question is, how will you, if you have any plans made, how to finance the next couple of acquisitions? Or how will you finance them?
Our ambition is to finance them with our own cash and/or from our own balance sheet. We have the option to print new shares as needed, but our first option is always to finance them through our normal sources.
Okay.
If it would be a very big acquisition, then we might come back and print some more shares if needed.
Okay.
Okay. I continue. This I like this slide. It may not be the best visual look, but what I show here is our four cost elements. It's white collar, it's direct labor or blue collar, other cost and depreciation. What we can see is that over the last five years, we have a very good trend of these cost elements. We can see that white collar cost has gone down with almost five percentage points. That's a lot. Other costs, this means leases and electricity and stuff like that, we have gone down from 7.8% or so down to 5.5%. Direct labor costs, it has been a bit more tricky to get to turn that curve downwards.
I would say that it's better than it looks because we have grown much more in Sweden, and labor costs here are a bit more expensive, and we have a bit better margin in this area. Even though it looks that it has been hard to turn it around, it has actually been good for the group. The offset that we see is that our depreciation is actually going up a bit, but we only talk about a few percentage points there. If you look, depreciation have went up from maybe 1.4%-1.8% over the last five years. Overall, the cost elements have went down with almost 10 percentage points in total.
At the same time, we have given way about half of that benefit to our customers, so our contribution margin has gone down from 39% to 34%, 35%. We have managed to keep 3%-4% of the improvements in our result. This is what I refer to as the benefit of utilizing your fixed cost elements in a much better way, and we transfer that into what we call fall-through. Our target is that 15% of our extended sales should end up at the bottom line. I would be happy if we reach 12-13, then I know that the profitability will go up. The last three years, we have managed to get 15% of the increased sales ending up at our bottom line.
Fall-through, that is the word for today, together with retention rate at customers. We have never showed this, but I wanted to show it to you because I think it makes a lot of sense. You have to work with these trends and ensure that you continuously do this. I would say that if I look at this and say, "Okay, how the hell can we have this?" Have we fired a lot of white collar? That's not what we have done. We have just not hired. We have ensured that we can grow with existing management levels and so on. This is really important for us. This is why we can still continue with continue our strength and margins.
As I said, if we didn't grow, the only way to reach this is to reduce the cost base, and that's really nasty and tricky to do. Growth is so important for our strategy. I will not speak so much about this slide. I will move over to the next one. This is a bit of a rehearsal, but here we try to put up, okay, how will we reach these levels that we're talking about, SEK 5 billion in four years? Actually, if you look at the blue chart, it's actually just an extension of where we are. It's a bit lower leaning of the curve.
What we see for the coming, say, three, four, five quarters, we see that the numbers that we have in our books are suggesting that we will be at this level. If we project our margin, we say that we will reach 10% or at latest until 2025. If we just project where we are, we will probably reach it faster. We also know that the higher you get, it's harder to continue with the same speed to increase the margins. We also know that if we add acquisitions, it's unlikely that those will have the same profitability that we have. Most likely, new acquisitions will dilute our margin.
Not suggesting that it will go down, but maybe the increase will not be as fast as you could project if you just look at it this way. Those are our two new objectives. I have often been asked why don't you quantify your operating margin? Where do you want to go? How good can you become? We can see that there are companies within our industry that are making 15%-16%. It's not that we are aiming towards somewhere where no one has ever been. We believe that this industry are constantly growing. We believe that the strengthening relationship between customer and suppliers are a bit more balanced, so that we also see that it's possible for us to maintain our improvements at a reasonable level also for the profitability.
Um-
Yeah.
One question here with regards to the operating margin. You've been talking a lot about the retention rate. Are there any fears from NOTE about keeping the retention rate as high, or are you at risk of getting some negative customer feedback down the line if the profit margin, operating margin keeps growing like predicted?
It's a very, very good question. What I say is that since we are now investing a quite good part of our profit after tax, we see that we are investing back to become even better towards the customer. I think this is some kind of constant wheel that is moving on. I also see that. If you go back to see the cost elements, if we are improving the cost at this level, I think we're still at a level where we are quoting at least not higher than anyone else in our peers.
If we are already at the lower end of the price range, but are managing the company a bit more efficient than others, why shouldn't we be allowed to earn a bit more money? Because it's all that comes down to is can our customers source the products cheaper somewhere else? If they cannot, why would they move just because we are profitable? I think it's a bit of a. There's a lot of answers to that question, but I know that since when I was at Flextronics 20 years ago, many customers already saw that 4% was too much. It's a bit of a changed behavior within this industry over the last decades. Any more?
From the internet, how much of the SEK 5 billion sales projection will come from M&A? Here it says primarily.
Yeah.
organic growth.
Yeah, if you look at our history, if we can continue with growing, say 15% year-over-year organically, then we would end up with a gap of SEK 200,000 or SEK 200 million that we need to acquire to reach the five billion. It's a bit hard to say because the majority will come from organic growth. If it's 15 or 13 or whatever, it's hard to say at the moment. For the coming three, four, five quarters, we see that we will be at the level where we have been the last couple of years, at least.
Okay.
Okay. Of course, we are capital structure and dividend. We are not changing our current views. We still believe that the solid financials are important. We should never go below 30% in equity. I think we have never been below 35%-36% for the last, say five years at least. I think that we will most likely have some headroom to this 30% at least as long as I'm still CEO. I like to have a strong balance sheet. It always gives the flexibility when the market conditions are a bit tougher. Dividend, we're not changing that strategy either, at least not to my knowledge. This is a board decision. This is how we are.
Looking at sustainability, I think all in all, financial objectives are very good. It's something that we are working with. We also see that we're moving more and more into the area of green tech. If you look at NOTE, we have a long history of doing what we refer to as sustainable work. In the light of what is happening currently, I would say that when you read this, it's not that important. Just remember that we got our first environmental certification in 1997. At that time, it was very few companies that had invested in this. It was almost like the ISO standard was not already finalized. It was a lot of changes in the standard at that time.
We started early with it. We have been very keen on code of conduct. We have been part of the UN Global Compact since 2011, also very early for many companies. Also related to health and safety certification. It's in a new ISO standard that you will hear a lot about, ISO 45001. It's how you certify your sites so that you can ensure that you're working with your staff's health and safety, physical and psychological working environment, and how you have a controlled process of how you improve these environments. That is something that we implemented already in 2013 in China and in Estonia.
The reason why we did that was that if you move to China, a lot of companies get some bad publicity because they're not taking care of their employees in a good way in those far or remote areas. Therefore, we early decided that we wanted to have a third-party certificate on that we are handling this in a good way. Our sustainability targets are from today that we are to become 100% carbon dioxide neutral by 2022. This is within Scope 1 and 2, meaning that everything that we do internally, our electricity consumption, our heating, and so on, should be coming from renewable energy sources. Today, our number is 82%. Where we cannot buy electricity from renewable sources, we will do climate compensation or carbon dioxide compensation programs.
There are third-party certified programs for this, and we are already compensating for the balance that we're not being able to buy internally. We claim that we will do this from 2020, but or 2022, but we will already by 2021 do the compensation, so we will actually be neutral already from today. We're also saying that we should have all our sites being ISO 45001 certified by 2022, just to ensure that we're not jeopardizing any of our employees' health. This is my last slide, so I will, with the new objectives here, open the floor for discussion. It has actually been open ever since we started, but.
Mattias Eriksson, PAM Capital. You had a target for return on operating capital before. Why is that one of the targets any longer?
That's a very good question. We had a long dialogue or discussion within the board how to put this up. We are not suggesting that it will go down. You will most likely see the same, how should I say, working capital way of working as we have done in the past. It will go up when the margins go up. We decided not to put it up there. We felt that it was more important for the ones that are following us to have the operating margin target. If it's many more than you that suggest this, we might add this back into our targets.
It will keep the level?
Yeah. It will not go down. That's what we suggest. It's not because we want to have an enormous inventory and so on. It's not because we believe that we will be weak. It's we believed that it was more accurate to have the operating margin target.
Okay. Let me ask you a few questions.
Sure.
Here's one question relating to the operating margin, and that is, how much of the target you have above 10% average will come from improved procurement pricing? Is that...
It's very hard to say. We can say that this year is the first year since I started in this industry where we see price increases on components. I'm hoping that this is also one of the few years that we will see that, because those that are producing components will have similar improvements as we see within their own facilities. Often we have quite open calculations towards our customers. If the price goes down on the BOM cost, we often give that over to the customers. Even if the prices go down, the customers will get the better price rather than we get the better margin. It's our internal work where we will see the margin improvement, not that we will, so to say.
What are the biggest BOM items or cost of goods sold for you guys here? PCBs, components? Any kind of distribution you would like to offer?
Oh, this is very good. I would say that the PCB cost is often 10%, Karin, roughly. Then you have maybe two, three, the most advanced circuits are probably 30%-40%, the traditional semiconductors. Yeah, the rest are quite cheap components. If it's box build, it all relates to what kind of other parts you are adding into the BOM. It can be a real expensive metal frame if it has a lot of Chinese demands and so on. It can be really. When it comes to box build, it's very hard to say.
Yes. Thanks. Some persons would like you to clarify your organic growth expectations. Did you say that you expected 15% organic growth, or 10% plus? Is that the hoped-for goal?
We decided not to split the growth between now and 2025 in those two buckets. If I look for the foreseeable future, which is probably for the 2022, we will see growth that will be in line with the last year's average growth on the organic side, at least. We'll see what happens.
Okay. Another question here. If your backlog is 70% higher than last year, aren't your new targets a bit defensive?
Yeah, you could say that. It's what. When we referred to this in Q3, we saw that Q4 and Q1 would grow at least 50%, is what we communicated. Then the reason why we didn't push it up higher is that we also believe that there are some, what should I say, some air in our orders. We believe that some of our customers are over-ordering a bit just to get more inventory, and that will, so to say, be adjusted in the coming quarters as well. When the market opens up a bit, I expect that we will see some stock reductions at our customer sites. Therefore, we don't guide all the way up to our order backlog.
Okay. The spread is basically due to this forecasted.
Yeah. I might be cautious, but I think it's better to be that than to over-exaggerate your order backlog.
Okay.
I think 50% is still decent.
Are there any cost of goods sold items in particular where you are seeing cost inflation?
Yeah, semiconductors.
Semis.
Yeah. Anything that is programmable is just ridiculous.
Regarding M&A, question here from Norway, I think. What is the most likely target size of a new company? If that is something you would like to clarify as measured in revenue, for instance. Also he is asking, what kind of valuation multiple will you have to pay? Of course, it's tricky questions.
Yeah, it's gonna be very low. No. If some of those are listening, no, just kidding. I would say that if we just look at the last two acquisitions we have made, the multiple has been very favorable to us. I would say that the current trend is suggesting that you will have an EBIT margin or multiple of maybe 7-7.5 maybe, for business that you acquire. It depends a bit on how long a trend they have of growth. What is the trend of profitability? Is it stable? Is it going up? Then you might pay more.
If it's flat company with older revisions of the products, then the multiple will be lower because then you might see that you will start to lose some sales in the products. It's very hard to say. I would say that a target size is probably not less than EUR 10-15 million. Probably in the range of EUR 15-30 million would probably be a good target size. If we're looking at Eastern European sites, it might be a bit lower because we might wanna do it just because we want the space, so it could be a bit of a different mix there. It's let's say EUR 15-30 million in revenue would be a good target for us.
Okay. Thank you. I have one more question, but before I ask that, I want to give the audience a chance again, 'cause this could be the final question.
You think that the answer is that long?
Yeah. When I listen to Karin, it seems that you're almost don't need any new customers. The customers you have are very successful, and therefore you are very successful. I guess you want more successful customers. Are you saying no to customers that aren't growing enough for you, so to say?
I just-
How do you select customers?
Also a very, very good question. This is a mix. Sometimes you bring on customers that have very high growth expectations internally, and then it doesn't come through. You expect the customer to go from maybe SEK 5 million to SEK 20 million within two years, but it never happens. It remains at SEK 3, 4, 5 million. You have probably went in with a bit too low pricing because you believe in the expectations and so on. It can be that you have a quite tricky relationship between the customer and yourself.
What we are very cautious about is that if we are entering customers because we're not seeing that it's a good fit for us, then we try to help them to find another production unit outside the NOTE group, so we are not upsetting the customers. I would not say that we are succeeding in every of the instances, but in most of those we do. If a customer is too small or that the customer has products that are not so well fitted for our production, we would probably say, "Yes, we can quote on this, but we believe that you can find a better source than us." We are a bit selective when it comes to new customers. Maybe Karin will add there.
Looking at Torsby, of course, we want new customers, and we're working very hard to achieve that goal. The figures that I presented are based on the current customers, but we also have ongoing discussions with new ones. Of course, we want to expand even more and take in lots of new customers with nice new products, of course.
I can also say that with the recent years, we have getting quite much publicity around that we are going quite well, and that is actually attracting more customers, so we have more and more customer calling in to us wanting to move business or to us. It's a very healthy situation for us, especially in Sweden at the moment. We want new customers, and we are trying to select the ones that we believe have a share our view of growth and the same view of quality and operational excellence that are the key drivers for their business model. We're not that keen on going into areas where the customer are very, very squeezed on the margin.
We might not be the right supplier for them because we will not take any shortcuts to get the price down. We will work very thoroughly with how we produce to ensure yield and quality.
Maybe now it's time for the final question.
All right.
The question is short, and let's keep the answer related to NOTE, and that is, what makes you not sleep at night?
Oh.
As in, what could go wrong with the financial targets is the proper subtext.
I would say that it's a very short question, but the answer can be quite long. What I would say is that I'm very comfortable in that our decentralized business model, we have very strong managing directors. You have met two of them today, or one here and one on the call. They are so dedicated to ensure that we treat the customers well out in the factories where we actually are meeting the customers and where we produce the products. For me, that's a very big comfort that we have strong managing directors in all our sites. We have strong management teams in our sites. Therefore, I feel very comfortable that all these management teams out there will handle the customers and treat the production in a very good way.
We also have a very strong and focused core team at the head office that are supporting the sites in any way we can. Here we can say that we have shifted our focus a bit. We were a bit more, how should I say, hierarchy in the past. Now we are working with the sites and trying to learn from the sites and support the sites that need support. Say, Torsby, it's a very good example where I say that we in the past have been fighting against each other a bit of investments and how to grow and so on. Today, we are trying to understand what is the real need for Torsby to become even better. Torsby has been our strongest site over the last 10 years.
It's actually only this year that Norrtälje will be a bit bigger than Torsby. Karin is very dedicated to get back at the first position for next year. I'm not sleeping that bad over this. It might be if I lose the sailing competition, I can lose some sleep, but otherwise, I sleep quite well.
Thank you.
Any other questions? Yeah, yeah. Karin wants to add some things.
I just wanted to continue what Johannes Lind-Widestam has said about the difference in the last five years. I think one of the main reasons that NOTE is growing so fantastically is that the group, the management group level and the managing directors are working so well together. Now the managing directors are always getting what they want, which is crucial to be able to grow, otherwise you can't grow. This is a fantastic cooperation between the teams, and this is one of the main reasons why we are in fact growing like we are. Thank you.
I would like to just add to that, not always what they want, but what they need. It's a very big difference there. No, thank you very much, Karin. I think so too.
What's next on the agenda today?
Next, I think we will have some refreshments out there for those that want, and I will be here for as long as needed to answer any individual questions that you have for the group that is here. I would also like to say thank you a lot to everyone that could not join in person. I hope that you have had the chance to listen in and understand how we do things and how we want to move forward from where we are. Also feel free to send me questions afterwards or to our CFO, Henrik, and soon to become Frida as well, if you have any questions. Please don't hesitate to send them to us, and we will answer them afterwards.
I would also like to say that after every quarter, we will have a quarterly call where you can call in and listen in to us, and we will also answer questions during those calls from the audience. Okay? Anything more? Otherwise, I say thank you, everyone.