Good morning, everyone, and welcome to NOTE's Q4 presentation. How do we see upon this quarter? It's when we entered the quarter, we had a bit higher expectations. We saw some push outs of customers that affected the sales and the consequence also on the bottom line. So the quarter ended very much in line with what we guided for in mid-December, which means that we ended up at SEK 1.018 billion sales and 8.5% in underlying operating profit. This is not according to our expectations. We are expecting higher growth. We are expecting to be better in compensating on the cost side, so we are quite disappointed on the quarter. That's fair to start in that area.
We, if you look at the profit, it's, yeah, it's lower than any other quarter for the last, say, six, seven quarters, and so we will, we will come back to that. But to everyone that doesn't follow us so frequently, we are, our, our profit is, is, it's a, we can say that we are, we are expecting to compensate, better when it comes to cost side, when, when the, when the sales go up and down. This quarter was a bit, specific. We have factories that were down with maybe 40% from the speed we had in Q3 into Q4, and to get those, the cost sides of those sites in, in shape so we don't lose margin is quite tricky.
So we had some lagging effects in terms of adjusting the cost side to the run rate. Now, when we entered this year, we are better aligned with the sales and the cost side. So we will, everything else equal, we will do better profits on the same sales going forward. With that said, we have some factories that are doing extremely well as well. So there is a big deviation between sites and between the different customers and segments. As we have said before, it's still the, destocking continues. You can say that the destocking takes a little longer time than expected due to the lower, or the weaker economy. That is fair to say.
We can see that that what we expected when we enter Q3 has taken more time than we expected in adjustments from the customer sides. And as we have said, we are fairly flexible in pushing sales between quarters and so on, to support the customer's business models. That there we are a bit different than many of our peers that are much stricter, and if an order is placed on a certain date, that will be shipped on that date. So therefore, Q4, we pushed out maybe SEK 20 million-SEK 30 million out of the quarter in, as we guided for. That had a profit, negative profit effect, but that will be sold in the first quarter instead of the fourth quarter. So that's how it looks.
Looking at next year or 2024, it's we are expecting that the year will start a bit softer, as we guided for, and that it will pick up a little bit during the year. We're not expecting that the market will be fantastic in the second half. We are expecting the market to be fairly much as it is now, but our view is that the destocking effect will have a positive sales trend for us. When our sales are better meeting our customer sales, that will be then our sales will go up. So what we see is that the customer sales to their customers is significantly stronger than our sales to our customers.
And that's very important to know that this, our sales today, does not reflect our customers', speed, through the water, as I see it. So it's, yeah. As I, what we say, the. When it turns down, it goes a little bit faster than we think, and when the business picks up, it's going to go faster than we, than we see. Because that is, the swings are quicker and a bit deeper than we have seen in the past. And I think that is something that we can drill down a lot into. If you look at the numbers, 4% growth, majority of that is acquired growth, when -1% on organic. Operating profit reported 10.9% versus 12.3% last year.
Last year, we had a one-off of SEK 50 million. This year, we had one-offs of somewhere around SEK 26 million. Yeah, the underlying is 8.5% instead of 10.9%. So it's a bit weaker than we expected. It came in where we expected when we did the guidance. We can see that cash flow came in stronger than we expected. As I said, we are in a trend where the inventories are going down. It's a bit hard to say which quarter the reduction will come, but the inventory is SEK 100 million lower than it was when we ended Q3, and our expectation is that the cash flow or the inventories will continue down.
That will continue to have a very positive cash flow effect. As I said before, it's very tricky to say if this is gonna end up in Q1 or Q2, but if we summarize the year, we are expecting a good cash flow and a good reduction of our inventories. Then we think that at the end of this year, we see the sales are expected to be stronger, and that will naturally happen. We'll start to build some inventory to facilitate that growth. But overall, the inventory will go down, and that will support a good cash flow for the year. For the full year, 15% growth from 6% organic, I think 5% acquired, and 4% currency. But still growth.
I think, if you look at the EMS market, the expectations of that is that it's going to grow organically around 7%, trending over time, but there will be big swings around that number. If you look at 2021 and 2022, we had organic growth exceeding 20%, and now we had 6% for this year. Last year, about 5% of our growth were spot buys that we invoiced to the customers. So if you take that away from 2022 and you add it on to 2023, the difference is not that big. So we will, if we count that way, we are at 11% of organic growth from a volume point of view. A bit complex, but that's how it looks.
Our industry is very, very often not that straightforward as it can sound. So what do we think about the future? I think this trend line is going to continue. I will come back to our guidance later on, but I think it's fair to say that all years, we are gonna trend higher than the underlying trend line, which is 7%, organic growth. The industry is expecting that 2024 will be slower growth, aggregated for the EMS market, due to higher growth in 2022 and 2023. So the message that I got was that it's, the industry has delivered some of 2024 growth already in 2023, so that will have a negative effect on the industry's growth for the year.
We have been quicker to adjust to this, which is why we see that our growth in the third and fourth quarter is slightly lower than the industry. So we are expecting that we have moved over some of the sales into 2024, where our peers has pushed it out in this year to keep their numbers that they have promised. We have seen some indications that some peers are guiding for a very slow first half with negative growth numbers. So it depends on how you think, but we believe that 2023 came in sales slightly lower than expected. We were slightly less profitable than expected. Cash flow came in fairly much as we expected when we started the year, but very back heavy, so the Q4 was a big cash flow quarter for the year.
But all in all, given all the problems and the challenges that we were facing when we entered this year, we believe that we came in fairly okay, slightly lower margin. We were expecting to hit the 10% this year in the underlying profit. So we are behind there. We will do our utmost to come back to where we should be. Moving over to the segments, still very good growth in Western Europe. Rest of the world slowed down in the second half, especially our Estonia factory had slower growth in the fourth quarter. We should know that in the fourth quarter in 2024, we had fantastic growth in that factory, so it's a bit of how you compare.
So overall, they did a very good year. 23 was the best year we have had in Estonia, and also around the best year we have had in China. Sales were flat, but the profit, the underlying profit was a bit higher. So the Rest of the World is doing very well, as I see it. And my expectation is that the Rest of the World will have slightly lower operating profit than Western Europe. The margins are thinner in those regions. We also see inventories went down in both regions, if we would exclude the inventories that we acquired in Western Europe. So all in all, fairly good. If you look at the segments, and here, I get a lot of questions because this is very, a lot moving here.
We have Industrial, very well-supported. Defense industry is part of Industrial. That part is growing very good, 15% for the full year. I would say that in terms of growth for 2024, I would expect that most of the growth in actual numbers will come from this segment. Communication is in a good trend. We are seeing that the outlook, for example, cell phone infrastructure is quite weak. So we have some customers in this area. They are a bit pessimistic about the outlook for 2024, especially for the first half. So communication, we have some customers going very well, but we have some customers that go quite weak. So this is a segment that I'm quite neutral into next this year.
MedTech has had a fantastic year this year, start up of a few new accounts that have been growing heavily. Looking into next year, I think Q4, we were actually a bit negative on growth in MedTech. So this is fairly, how should I say, we are looking at a year with maybe plus or minus zero in this segment. GreenTech, I'm always optimistic about this because I believe in that this electrification and yeah, the reduction of carbon dioxide has to come, and the only way it can come is through products. It doesn't matter how much our politicians are talking about it, we have to change over to products that are supporting a lower carbon dioxide footprint. So this has to come.
So, I'm still. Yeah, it frustrates me that we're still showing negative numbers in this, in this segment. We're well-positioned, we have a good and a diversified customer base here, so it. Yeah, so our customers should do a better job, you can call it, but, I'm not gonna, gonna say that they are doing a bad job, but it, it feels it frustrates me still. We have had very high expectations of this segment, and it has not came in as expected. Fourth quarter were actually slight growth, but I still expect that the first half of next year will continue to be low. We see more and more pushouts in this segment as well. So, it, it's, it's quite weak.
So all in all, I would say that when I look at this, the majority of the growth will come from Industrial. It's our biggest segment. It will grow in relative size in 2024, as I see it. Also, when we talk about customers, we have our 15 largest customers stands for 48% of our sales, and our largest customer in 2023 were around 5%, down from 6%. So dependency of one single customer is lower this year compared to the previous years, which I think is very good. Again, when I look at customers, I talked about it in, in the, in the Q3 presentation, the swings from, or for the customers during the year, it continued in fourth quarter, but it were more aligned with the, with the third quarter.
We did not see an increase of those swings, but it came in fairly aligned with that. So going into 2024, I would expect that these big swings will not continue into the year. Customers with low demand in the second half of this year will continue to start on a low level and start to increase over the year, and the ones that are ending 2023 with good demand and good speed will continue with that. So I think the swings in the quarter will be much less in Q1 compared to Q4 in 2023. And that's very comforting because that means that we have adjusted the factories to what we are seeing in the coming quarters. So that's how we see it. Yeah. Some highlights.
Yeah, strong balance sheet, I think that is something that I'm very pleased of. I think our target is down equity, about 30%. I think for above 40% is better, especially in these kind of situations. Cash is becoming a cost. With higher interest rates, it costs money to have a weak balance sheet, so we are - we're not suggesting that we should be weaker on this one. Also continued strong or very high pace of investments. Even though the second half was slightly slower, we continued to invest in our production equipment, and that is a good security for everyone that is working with us, that we will continue to be better and more efficient, also in a slower economy than.
So we will continue to be better in our capacity utilization, and so on. If we look historically, I've said it before, but we have grown from 2018 to today with 230% overall, and we have increased the head count with less than 60% in the meantime. So I think that is why NOTE has managed to take these big steps in profitability, and we will continue with that. So what we see today with the slower pace of Q3 and Q4, we see that as, how should I say? A shorter period of, I wouldn't say failure, but less good results.
So when we look at this year, a few years down the line, we will see a big, a small, what do you call it? A big, a small, hiccup in the curve, or. So that's how I see it. But also, we talked a lot about component market. Today, you can say that it's normalized, meaning lead times are back to about where they were before 2021. Availability of component has come back to almost normal. There's still some work to do here, where some suppliers are trying to maintain longer lead times and higher pricing. I believe that will continue to normalize over this year. Pricing is something that is still too high, in my opinion, on components, so this will continue to come down.
Lead times will continue to come down. Also, during these years, when it's shortages, many suppliers are requiring that we were buying on non-cancelable, non-returnable conditions, meaning that if we order something today for delivery a year away, that product will arrive in our inventory, even if we don't need it. And that every time there's shortages, suppliers want to lock up the customers because they know that after shortages, it will be a downturn, so they will just ensure their sales for, like, three, four, five quarters going forward. I think that is something that we need to work on to change the behavior in the industry, because that creates these big swings. It doesn't bridge it, it creates more swings.
It has been that way for many, many years, but it's not a good situation. The industry, as such, is losing on it. The consumers is paying a higher price due to the suppliers' inability to balance the swings in demand, as I see it. But that's how it is. What is positive is that our quality performance is still very high, highest in the industry. Our delivery performance has came back very strong in the second half. We were delivering good during the component crisis, but we see that the numbers are starting to come back to where they were before the component crisis. So I think that is also very important to know.
As I said before, if we are delivering on quality and delivery performance, that offsets a lot of discussions around cost increases, and so on. If we can ensure that the customers get the products on time with good quality, that is the main concern for many of our customers. So it's very important, though. Then price, of course, is always important. Okay, where are we heading? For the full year, we still see that the guidance we did in December is valid, SEK 4.5 billion-SEK 4.8 billion, with a margin of 10%. This means basically that we are expecting 10% growth, plus, minus a few percentages. We also see that Q1 will be fairly much in line with Q4 when it comes to sales. There's some seasonality effect.
We know that China is closing two weeks for Chinese New Year. That effect is, since we're doing maybe SEK 40 million a month in China, that is gonna cost about SEK 20 million in sales, so that's the effect it has for the group. But it's all Q1 has the same effect, so it doesn't really move forward. But if we compare Q3 to or Q4 to Q1, that effect has to be considered. And also long term, I think it's important to know when we're going away from a quarter or from the last half year with slightly weaker numbers, if we look at this from a bigger picture, is it, where are we heading?
I think that is important, and why do we believe that we will achieve good growth over the next four years? As I said before, we're looking what we have achieved, we're looking on how the underlying trends in the industry, and we're looking at how the bigger groups are gaining market share from the smaller companies in our industry. If we consider that, I would expect that the listed EMS companies will continue to have double-digit growth over time. It will be swings between quarters and years, but the underlying growth will be very strong for those industries. The reshoring trend is not beneficial for the small one-factory producers because they are too small to take on this. So these trends will benefit the larger companies like us and our peers.
So I believe that this is supporting an underlying good growth going forward. We also see that the regionalization in the world is supporting our footprint, so both of those trends are beneficial for us. There's unfortunately no trend saying that the globalization will come back. It's We still see more and more borders or trade barriers are put between different regions. It's sad to say, but that's that's the way we are heading. So, it's sad for the world economy, but it's good for our current footprint. Our factory in China is playing a very important role for us, for the products we make there, but our majority of the sales is coming from Western Europe, and that's where we see that the growth is stronger.
So we are quite pleased with how our footprint has developed over time. We have a lot more to gain from our two last acquisitions, and so on. So we believe that all in all, the growth will come from production in Europe or from the sales in Europe, and we are very well positioned there. So for me, I think it's we have everything in our own hands to achieve our long-term targets, and we will continue to deliver on that. Looking at the. If we are looking at the last four years, growth has been higher than what we are expecting for the coming four years, just to put that in perspective. And as always, I can talk forever, so I will open up the floor for questions.
So I think we start with the questions in the room. If there are any. If not, I start with the questions online, and then we move over to you. First one from Marcus Ramström . Oh, this is in Swedish. Okay. In our report, the guidance from December 11, we were talking about delays from products in the defense industry affecting the sales in Q4. We did not mention that in the report. We're talking more about the challenges in the economy. Or now the economy affecting more than the delays in those projects? Of course, the delays that we saw will be delivered in Q1, so that is part of our guidance.
So we are seeing that the start of this year will be fairly weak if we take that into consideration, but that's included in that. So we are expecting that we will pick up in those customer projects that were delayed. Next one is from Carl Norén: When you state the good cash flow for the full year 2024, can you maybe explain what a good cash flow is, 50%-70% of EBIT? I would say that our expectations is higher than that. Good cash flow is probably, if you look at profit after tax, 80%+ of profit after tax is, in my opinion, a good cash flow.
Especially now when we see that the growth is not expected to be that strong, we are expecting cash conversion to be stronger. I said before that growth is consuming, cash, and now we're not growing that fast, so it's natural to expect that the cash flow will be higher. Then we have from Thomas: Good day, and congratulations for a well-delivered 2023 result. What are the consequences for Note if customer want to back out of contracts already signed? And if I may add a second question, do you see any risk of being highly exposed to the Industrial sector? Yeah, if customers want to back out from contracts already signed, often that is regulated in the contracts.
That could be if all the material risk is contractual belonging to the customer, so they have to pay for the material, and if they don't want to have orders that they have placed, we are often entitled to compensation for costs that will be associated with the discontinuation of those contracts. That's normally how this works. So that's what I would expect. And also, I'm not expecting many customers to back out of our contracts. It could be delays in production, and then we have to treat the over inventory over time, which is often regulated in contracts. And if I may add a question, do you see any risk of being highly exposed to the Industrial sector?
Again, I think our, our Industrial sector is so wide, so it's so many sub-sectors in that. So I think that's it. Yes, we will have sub-segments in industry that will be quite weak also in 2024, but we will have others that will be really strong. So overall, this will be very, very, very strong. So no, I'm not, I'm not nervous about the high Industrial segment share of our sales. Then we have from Nicholas: Do you think that the problems Houthi in the, in the Red Sea and the Suez Canal can have a positive effect on NOTE? Yeah. I think very little positive will come out of that, of that thing. And I think it's much bigger than just that they're just attacking ships.
This is a global geopolitical reason behind this, so this is not very good for anyone. But if I look at NOTE-specific, we will, of course, disruptions in supply chains will put more pressure on customers to shorten their supply chains, so in that way, it could be beneficial. Electronic components are more frequently air freight, so anything related to electronic manufacturer will not be affected of this in any big ways. We also ship some products and some sheet metal and plastic from China. Those products can be affected. So far, we have not seen any delays due to this, but it's too early to see when this happens. But I would say that the freight industry is fairly good at just rerouting, so they will go around Africa.
Costs will increase with maybe 50% for freights, and but the goods will arrive two weeks later, and the industry will quite quick adapt to it. So that's what I would expect. And freight cost for us for this is, I would say, marginal. So yes, we can be affected, but the effect will be very, very slow. If it's positive, could be, this will also support regionalization, and I believe that that is good for NOTE, so in that way, yes, could be positive. Okay, one more from Carl Norén: What signs do you see of increased demand as Q1 is expected to be at similar levels? Do you have signs of an improvement already in Q2, or is it more in H2?
Yeah, if I look at our orders that we have, the seasonality trends that we normally see between Q1 and Q2, it's. We are assuming that we will see higher sales in Q2 versus Q1. We also expect that destocking that is taking place among the customers will, over time, have lower and lower impact of our top line, and that will give us a higher sales, even if the economy remains at the same level. So yes, we are expecting that Q2 will see better sales than Q1, and that we continue that trend in Q3 and Q4. Next question from Lars Jonsson : In our report, you're mentioning that the potential dividend may be.
Is it a one-off, or is it a new trend that we will give annual dividend? I say that this is a question that we'll come back to when we are sending out the invitation for the annual general meeting. Over the last years, we have seen that we have used the cash flow generated for acquisitions, and we have had good output of those. So we will see where we're heading with this, but with the strong cash flow that we saw in 2023, there are potential for dividends. But we will come back to that question. It's more of the board to answer this rather than me, but that's the logic that we see.
That was the last question I had from the web.
Could you give an indication of reaching SEK 7.5 billion in sales? Sorry about that. Yeah. Hi, my name is Johan Ståhl. I wonder if you could give an indication of the split between organic and acquired growth in order to reach those SEK 7.5 billion by 2027.
We are stating that the majority of the growth will come from organic growth. So if we do a larger acquisition, we will, we will adjust this upwards, as I see it. So if you look at the last, say, five years, the acquired businesses that were done added in 2023, about SEK 900 million of the. Yeah, what can it be? 2 or almost 3 billion in sales. So, so more than 2/3 of the growth the last, five years is coming from organic sales. So we are expecting the relation to be even higher from organic versus acquired going forward in, in that, statement.
Just to come back to the guidance and the underlying assumptions about new business. What kind of new business is included in your guidance?
When we measure how much new business we win, then we have a formula for that. And we can say that in 2023, the new business that we were awarded were aligned with 2022, so we are expecting that those will start to kick in gradually during the year. So we will see a part of the sales in 2024 will be business that we were awarded in 2023, and the majority, of course, will come from the old business. But there is a certain portion of the growth that we see is coming from the projects that we were awarded in 2023.
Okay, and with this slower economy and overcapacity, how about price competition? Are you worried about that?
Of course, price competition is always challenging. We have not seen that we have to go down on margin on the bids that we are being awarded, so we have not seen any effect of that so far. We could, of course, see more price competition, but we have not seen it yet. I think the market is fairly well-balanced still. Even if we're looking at the 2024 with slower growth, it's still growth. So I don't see that there will be empty factories like it was after, like, for example, financial crisis, when there were a big overcapacity when the economy went down. Then we had a completely different setup, so I don't expect that we will see anything like that.
So I would say that, we are expecting 2024, that we will still win business on the, on similar numbers that we have been awarded in 2022 and 2023. So, so I don't see that that anything that we have price pressure that will, that will significantly change the, our P&L.
Thank you.
Any other questions? If not, I would like to just summarize a little bit, and I would say that 2023, very strange year. We started off high growth. Expectation was that the market was fantastic or very strong. Order backlog was at all-time high. Long, long orders, four, five quarters in advance. Then, as soon as the component shortages started to decline, customers were starting to ask for delays in orders, or push out orders, as we call it. And that trend has continued through the year, started a little bit, then more, and more, and more. Then Q3, Q4, you can see that the request for pushing out is not increasing any longer. It's on a fairly similar level today as we saw in Q3. So we are seeing that we have.
Our expectation is that we are flattened out, and that we will see that the industry will start to pick up gradually. And I think that's fair to say. I was attending the EMS Europe show in late November, and the outlook is fairly similar to all industries. It's a bit, or to all companies. It's a little bit; some are gonna see maybe the highest sales in Q4, and then a big decline in Q1, and others are flattening out Q4 and are continuing to grow in Q1. So it's a little bit when you are getting your sales, so we will see that when we see report from others, as I see it.
But going into 2024 and into 2025, I am expecting that we will see that the trend curve we see on the blue, blue side, that we will continue to see a continuous growth also in the coming years. Because that's where we are heading, that's where our customers are forecasting where they are heading. And as always, we are only looking at awarded business when we are doing our projections where we are heading. So we believe that the years to come will be very strong. It will be a slow start of 2024, and then I would expect it to gradually pick up this year and continuing into next year. That's at least how we see it. Okay. Thank you for coming, and for those on the web, for listening.