Thank you, Mattias, and also very welcome to everyone that has taken the time to come and visit us today. Also very welcome to everyone on the web. It's. You can see all the event. You can also send in questions, as always. We will run two Q&A sessions. After me, I will run some part of my presentation, then we will have our Managing Director of Torsby site, Karin Nichols, will join me on stage to present a little bit about what we do in Torsby and how that is progressing. And then I will be back again and end the day with our updated financial and sustainability targets for the group. Then we will end the day with a Q&A session.
Before we start, I think I will have a brief introduction to NOTE. We had some short one on the movie we saw. But before we go in there, I'd like to just make a few comments on yesterday evening's news that we were introduced to the market, and for us, it's like we have had since I started in 2018, we have had continuous growth. We had, have, have had continuous margin improvement. We have had a very, very strong performance, and we still believe that that is where we are as a group.
Just to have that said, and I think there is some speculation, is NOTE's success ending here, here and now, and I would say that that is not the case. I will come back with some, I don't know what to call it, evidence or what you call it, but, that's very important, and I think it's a very relevant question. We have seen that we have missed our guidance now, and that's very rare for us. We normally have a very good control over what the customers are expecting, and this year has been very strange year. We started with this component crisis or component shortages, Q1. It ended somewhere Q1, Q2, and then suddenly, there was a flood of components coming in, and suddenly, the customers were starting to, "Okay, we have overstock.
“We want to push out orders.” So it was like, normally, this time takes a year, going from component crisis to overstock. This time, it took, like, two months, so it was very, very short time period, and that has a bit... Yeah, how should I say? We were not caught by surprise, that would be wrong to say, but we underestimated a little bit on how much the destocking would affect our strength or our sales. And, yeah, so you can say that I normally say when the economy is slow, it will change fast upwards, but it also changes for fast downwards, and sometimes you are underestimating the, how should I say, the speed in those changes.
So that's a little bit about that, and yeah, I can also say that we still believe that we are in a growth period, even though the quarter might not be in that. But if you look at the year, we have guided for 15% growth. We also gave some update on where we think we are heading for 2024: double-digit growth, and we always guide, as we say, without any unknown acquisitions. So we guide with what we have, and then we add whatever we acquire on top of that, and then we always come back with new guidance and so on. So that's how we normally do this. So just so everyone understands how we think when we put up the numbers together.
And as always, we guide with what we believe. We take what the customer states, we make an assessment and say, "Okay, yeah, they are over-optimistic or under-optimistic, or what-" And then we make some internal view of what we think is realistic, and then we convey that message to you, and then we, as always, try to be as accurate as we can. And as I said before, if we think we are stronger, we will update the guidance. If we think we are weaker, we will update the guidance, because you should know that we will be transparent to the extent that we can. That's very important for everyone to know. So even though it's very...
It's a hard thing to go out with a negative guidance as we did yesterday, but we will still do it, and we will try to explain why and what the underlying reasons are and how we will mitigate and so on. So that's, we will come back to that during the presentation, but that's how we think. And any questions that you might have, please don't hesitate to ask them. We will do whatever we can to answer them in a good way. With that said, let's move into the presentation. Yeah, we can say me, me, Karin, me, and Karin, and me at the Q&A session. So that's the day.
If you look at the NOTE group, I will start with looking at where we were when I joined as CEO, when I joined the board; it was also a half year earlier or something. In 2018, we did SEK 1.3 billion. Last twelve months, we did SEK 4.2 billion, will be slightly higher when we summarize the year, not much, but slightly. That corresponds to 20% organic growth year-over-year, plus acquisitions. That's what we have done in the past. I think that's very... I'm very impressed with what we have done, and I'm very pleased with how we have taken on this growth, because growth is not so easy.
We'll hear Karin talk a little bit about when we go from, like, 20– 30 million, quite easy, 30– 50, then you go from 60– 80 million in a site. Then it becomes a little bit more constrained because the machines are getting so tight. We use them maybe 24/7.... that you're used to do 24/5, and then you have the weekends to do maintenance. If you don't do that, you will have some growth enablers that will be restricted resources. But that's details that we might come into. But four point two billion is the number. Employees, we were sixteen hundred at the end of Q3. I would assume we would be slightly less when we end Q4.
We have 12 manufacturing sites, four in Sweden, four in the U.K, one is in Estonia, one in Finland, one in Bulgaria, and one in China. I will comment a little bit on the acquired sites later on in the presentation, and where we are on that. For those that remember, Bulgaria was a site we acquired, yeah, 3 quarters ago, and it's not the full valued EMS site. The customer were kitting material, so we had only value-add sales from that site. In Q4, we have converted the 2 first customers, and we will convert the last of the bigger customers during early Q1 and mid-Q1, as it looks.
And this will, what this means is that we will also add material to the sale. So the sales from the Bulgarian site will double or more in 2024 compared to 2023. And we have the resources in place, and we have the capabilities in place. So it's always some customer negotiations on what should the customer pay for that service? How should the transfer of material take place? How much inventory should we carry, and so on. So there is some practicalities that have been a bit taking some time to sort out in this case. But we will be there very short. China is a big topic at the moment. I think it's political.
It's getting more and more constrained or tight. We think our Chinese operations is very, very nice. I was down there 3–4 weeks ago, and I have to be honest and say I've never seen the factory look better. They have done a fantastic job during the COVID years. Automation, much higher. Sales per employee is up maybe 40% during the last 3 years. Fantastic done from their end, and yeah, so very impressive, and the site will do its best year ever in 2023. So for us, it's an asset to have it, even though it's a political yeah, problematic, if you put it like that.
What we have done, I've said it before, is that we have put ring-fenced it, so we know that we can, at any given time, we can divest it. They have their own IT system. They have their own firewalls around it. So from an IT perspective, that's always tricky if you divest something. We have already made it clear, so we can cut it off if we want to. We still believe it's a big and well-functioning site, so that's not in our plan, but we have taken those steps to ensure that we can do it if the political landscape becomes even more tricky. So that's a little bit about the site, the sites. Again, acquisitions, we will come back to that. We are hoping to add one or two new dots every year.
This year, we have added two sites, Basildon and Sofia. We will see where we will close next year. Moving on, I talked about this before, our timeline, and I always talk about it as timeline for the industry. I worked for Flextronics, 1999– 2003, when, in the early days of the EMS industry. You can say that the EMS was founded early 1990s. At this time, it was a few players that were buying out production sites from Ericsson, Nokia, Siemens, Motorola. Any big OEM player you can name, they were selling off their production units. There was a trend in the mid-1990s focusing on your core activities. For those OEMs, it was R&D, sales, marketing, and acquisitions. They did not want to produce.
Then companies like Flextronics, Solectron, and now those big American companies were founded. They were acquiring basically anything they could just to gain size. At that time, size was an necessary thing to become strong because size enabled you to buy material direct from the producers, which gave you lower pricing. NOTE did the same, but in a much smaller scale. We acquired sites from 1999, company was founded, and then we had a few years with a lot of acquisitions of small, medium-sized production units. So we had the early years. Size was important. The group was founded. And then you can say that the financial crisis put a bit of an end to a very important journey.
Should also say that one of the reasons why the big OEMs were divesting their production units was that they were on a journey to move production to China. China had very favorable conditions if you produced in China, so everyone wanted the production to be there, and that dragged out a lot of manufacturing from U.S., Europe, down to China. And then we saw a financial crisis, volumes were dropping. These carved out factories tried to fill up their empty production lines. The price was dropping, so we had a time from maybe 2008 to 2015, 2016, where a lot of divestment, closing of factories, and so on, were happening in the Western world.
I would say that from 2017 and onwards, the market has been fairly stable. It's what we call sustainable growth. We see that we and our peers in the industry, everyone is growing healthy, margins are improving. I would say relations to customers are improving. Everyone talked about partnership in the early years. I would say that that was a very single-sided partnership. Today, it's a much more even partnership between us and our customers. Then you can argue, how long will this, what we call sustainable growth, continue?
There is a few trends on the market that I believe will support this, and today, we talk about something that is called regionalization in the manufacturing world, meaning that a lot of customers wants to produce the European buckets in Europe, Asian buckets in Asia, and so on. And I think we can... If we spend some time and just think about what that means for the world economy, I would say that that means higher pricing. It will mean less internationalization. That is bad for the world growth. Where will that leave us and others? I think in the short-term time period, if you talk 3-5 years, I think it's a very, very strong growth because the European manufacturing will grow, and that's what everyone expects, is to see good numbers on growth.
But in the longer period of time, is this good or bad for the world economy? I think that's a political question, so I will not answer that, but I think it's not, it's not optimal. I think the world has benefited a lot from the high pace of industrialization that we have seen for, from say 1995 to 2016, 2017, 2018, when the tariffs were starting to, to, to get, to, to get in, in, in some kind of consideration. So if you want to see it as a NOTE-only thing, I think it's very po- very favorable. If you want to see it as a world economy, could be argued, we will see where this is heading.
But at the moment, we're heading for more and more regionalization with more and more closed borders between the different regions. When I talk regionalization, I see Asia, Europe, Americas as some kind of... And then you try to live with each other for in a way that is optimal for your own region. European Union is very heavily involved in putting fences around it at the moment, as I see it. So we're not better than any other region, to be clear. But again, I visited the EMS annual day, I think, 2 weeks ago. The general opinion is, yeah, the underlying growth of 7.5%–8% year-over-year until at least 2030 in Europe still valid. There is no signs that that will change.
Could be a shift from the very strong 2022 and 2023 growth years that might be that we, that the industry has delivered some of 2024 volume in 2022 and 2023, meaning destocking of the customer's inventories. That will happen into some way. We are seeing it currently. We will see how far that will go, but that's the only deviation, and as I want to say, there's never, even if our lines has been very linear, that is never the case for a longer period of time. There will always be these small bumps in the road, as I call it. So that's what we see. But I think, for the European region, sustainable growth, I don't see that it will end in the plannable future.
When we talk about that, we normally do projections 3-4 years ahead, which is why we always try to be 3–4 years ahead when we do our long-term planning. We don't see that happening, but we will see. I think it's an interesting position to be in at the moment. I've shown this before, our what we offer. I mean, we are a production company. We produce. That's our main task. I would say that 95%+ of our sales is in the production phase, in either the early phase or in the aftersales phase. Then we have 2-3% of the sales is that we invoice as services. That means NPI projects, test development, production, this development, and so on.
Anything we do in the early phase or in the last phases is sold as services. The part of that is constantly shrinking, while, when the production volumes are increasing. That's natural as well. We're also saying that half of the sales, give or take, are sold on a PCBA level, meaning a populated board, and half is sold either in a sub-assembly or in a box build. That part also contains the electronics, of course, so half and half.
And I would say that the last couple of years, the box build area has probably grown more, even though 2023, I would say that that has not been the case, because many of the new companies has had quite weak year, and that means that the box build portion has probably shrunk a little bit over the last year. But if you look at this in a 3-year cycle, that's what I see. If I look ahead, I would expect that portion to continue to grow. So we do like, we don't do product development, we do production development to ensure that the products are having a good yield expectancy, good performance on the field, low claims levels, and so on, but we don't do physical product development.
Then we do NPI, we do prototypes, majority serial production, of course, and then maintenance and after sales. We do that to some customers. We don't offer it to all. It's something that only the larger customers that we offer to the larger customers. And the reason is that after sales eats a lot of resources, so it has to be a substantial volume for us to be good at this. So we do it for quite a number of our bigger customers, but not for so many of the smaller ones. That's what we do. Some current trading. I mean, this is maybe this is Q3 numbers, so let's look at it. We are still 14% growth. We are operating margin 28% up, the last 12 months.
We had a very good Q4 that is still boosting the numbers a bit. 10.5% in rolling twelve. Yeah. Cash flow is gonna be a question that everyone asked about, and I've said that cash flow will come, and cash flow will come. No, just kidding. We're seeing that the cash flow has gradually improved. If you look 2021 and 2022, quite low numbers. 2023, we are after Q3, or the last twelve months, we are SEK 174 million. I expect the number to continue to go up quarter-over-quarter. It's a matter of how fast will this come. You can see that our inventory levels continues to decline a bit. Then we have, yeah, we have long payment terms.
We have to suppliers, we have quite long payment terms to customers, and so it takes even if we reduce the inventory, we'd say SEK 100 million in December, the effect will... then the cash flow effect will come in March, February, March. So there is always a lag of this, and that's. So we often measure this in, as how big is our inventory, but then we have to take into consideration the number of payment days we have to suppliers. So this is a bit of a lagging effect. Frida can tell you a lot about this if you want to learn more after the session. But it's, yeah. So we expect cash flow to be fairly strong.
Q4 is we expect it to be the strongest, strongest quarter this year, and then we expect next year to be even stronger. That's our, that's how we see it, and that's how we have tried to be clear on it before. It's very hard to predict this, yeah, if two big customers push out their payments over the year end, then you might lose SEK 25 million in cash flow. If you manage to get it in, you get better cash flow. There is always a fight in the last days every year to get the payments in. So it's, yeah, that's how it is. I think it's also important to see that year-over-year, we have also managed to increase the profit per share. We are, we think it's very important to measure profit per share.
It's a lot of companies in our industry that are issuing new shares, so I think that's very important, not, not only to see the, the, the operating profit as a group or the, or the profit as a group, we also need to look at do we dilute the share as well? And, and we have had, how shall I say? We have not been, we have not been forced to increase the number of shares during the, during my time here, which is very positive, I think. So the shareholders should know that we are very sensitive to dilution of, of, of our share. That's something that we also think is good practice when it comes to how we utilize cash. Yeah. Moving on. Segments, and we have four segments: Industrial, Communication, Medtech, and Greentech.
This is the rolling four quarter. Industrial continues to grow 11%. I think the group very often goes quite much aligned with how Industrial goes. It's still our, by far, the largest segment. We see good growth in Communication, very good growth in Medtech. As I said before, the triple digits as we have seen in Medtech, that was gonna end after Q3, and now we also added Q4 last year, and then the growth declined to only 65% because the comparable numbers are getting stronger. 65% is still good, so it's not, it's not that, but we will not see 100%+ growth in this segment in the next twelve months. We will see good numbers, but not that fantastic numbers.
Greentech has been, if we go back to 2021, I think we closed that year at 180% growth. Then we have had a quite slow, or the development of these companies has been weak. And for me, it's like politicians talk about the electrification, how we will more sustainable product will drive growth in our part of the economy. But if I look at this, this is a lot. We have a few EV charging customers, but we have other products in this segment as well, and still, the segment is declining, and that tells me something. It has been declining ever since second quarter of 2022, to be clear, or maybe third quarter of 2022.
So it's. We have 5 quarters in a row with declining numbers in the segment that the politicians talk about will double every second or third year. That is a bit, if you are a person that are like, how should I say? That are eager to see that the world is moving on and are becoming a less consumer of carbon dioxide. This is very problematic because we talk a lot, but the products that are bought by the customers or selected by the customer, do not support the rapid changeover from petrol fuels into EV fuel. If you look at car sales, private person car sale, the EV portion is down this year. It's a lot.
In Sweden, the EV portion of cars are driven by the company cars, where all the companies are forcing on that you should have a hybrid or an electric car. But if the private persons are selecting, they are 2023 selecting more diesel and petrol cars compared to last year. So I would say that, even though I'm not that fond of political getting interfering with what the consumers should select, but we see that contributions to the consumers add value and are making a difference when private persons are selecting what to do. As a remark, more than anything. I said it before, we still expect Greent ech to pick up.
There's a we have a very nice and good customers in this segment, and we still believe that they have a very good product portfolio that will, over time, start to get more traction. We are also winning new customers in this segment every quarter, so we are expecting it to go back into black numbers any quarter soon. I would be surprised if Q4 was. I've said, I told you that Q4 isolated should be growth. I'm not so certain then, it might take another quarter. But this is, this has been how should I say it? Limiting our growth. Fantastic 2021, okay, 2022, and then it has been 2023, it has been a burden to us. We-
You mentioned Smart buildings-
Yeah.
and that evolution within Greentech. Would you?
As smart building, we have some of the products are in the Greentech, some are in the industrial.
Yeah.
So it depends a little bit where they are in the building and what they do, but that if it, we have some subsegments that are really weak at the moment, everything that goes into new constructed buildings, very weak.
Yeah.
So it's... But again, as a listed company, we have to have—we cannot have twelve segments. That's gonna be a few very small ones. So we try to group them into some sizes and so on. So this is the best we have. Okay, yeah, just to show you this, we have a few things that we have done the last year. Acquisition of DVR, U.K. Very nice company, I think. It's good growth capacity. We're doing maybe GBP 12–13 million in it as a run rate, and I would say we can do twice or three times that amount in the machine park we have.
Maybe the old owner will argue with me about that, but that's what I see, and highly invested building and highly invested company. So we expect great things from it. Bulgaria, ATM Electronics AB, 4,000 square meters of production in Sofia. I would say that it's filled, it's half empty, as I call it. That means that we can at least double the production flow through it. I would say we can triple it if needed, because it's not so well organized either. If you have a lot of space, you will use more space than you need.
So this is a factory that can easily turn SEK 300 million in annual sales when we are through with it, and currently, we are trading at maybe SEK 12 million a quarter, SEK 10 million–SEK 12 million a quarter, so SEK 40 million–SEK 50 million, give or take. When we have added material, it will go up to, at the current run rate, maybe SEK 80 million–SEK 90 million, if I would just take a number. So that this is also a factor we expect a lot from. Also, the Bulgarian acquisition have a small satellite factory down in the southern part of Bulgaria that can also be extended a lot if needed. So it's and then the cost side of the business is even lower.
So Bulgaria is what we see, the lowest production cost per hour that we can find within the European Union, that is developed as an industrial company. You can probably find cheaper if you go outside the industrialized Europe, but this is we wanted to get to the southeast part of Europe to really get the lower labor, because that will... Then we have something to offer our Chinese customers that are want to move production from China to Europe, but keep a similar cost base on the product. So that's very important. And then, just two weeks ago, we closed something.
We released in, I think in February, March or sometime, or maybe even in January, that we were acquiring the building and a lot of land in Torsby for generate space for further expansion. You will hear some more about that from Karin. So this is really important for us in our growth. It's also that we are more keen on extending the building by when we own it, rather than do it through. This was owned by the Municipality in Torsby, and that was a bit had some challenges to do that under someone else's oversight, so to say. So these are some major events that we have done this year. And every year we have done a similar size of events.
So we add a few things every year, and the group becomes bigger, the footprint becomes more covering, and the capacity becomes significantly stronger. We didn't put up all the investments we have done in capacity and automation and efficiencies that we have done. Karin will mention that in her presentation. I will also come back to that later on in the presentation, but that's also something that we're really keen on continuing to do, so we can provide our customers with a more modern and more efficient factory year-over-year. So that is something that we are very keen on maintaining. Before we move on to Torsby, I will end my current trading with what we normally end on.
We see that our sales, this is a rolling 12-month trend, quarter by quarter, for the last five years. When we ended 2019, we were trailing at 1.7, and now we are at 4.2. I want to say that growth is the enabler of profit increase. I still believe that. So for us, growth is on top of our agenda, but what we call profitable growth, and because you can grow with if you take low-margin business, but that will not add to your profit. So we want to grow with similar business as we currently do, and that's our ambition. I've also said that there will be steps. The graphs always look very like in good synchronization between each other, but it never is.
Every quarter has its own challenges, and it has its own small things that happens, and in some quarters, you will have them positive, and now we have a very strong quarter. Some quarters, you have some negative variance that comes in, and then you see a bit of a, what you call it, the curve is take either it flattens out or it actually, as we see now, that it actually will go down a little bit in Q3 and Q4 this year. We still believe that that's a—it's not a trend change, it's more of a dip in the curve, and the curve will continue. That's how we see it. I will come back to you why later on in the presentation. But I will hand over to Karin.
Yeah. So thank you, Hannes, and I'd like to invite Karin Nichols as well to give us a little bit more insight in Torsby and all the events that are happening there. So we'll start off with a short video. So thank you, Hannes.
Thank you.
... Well, thank you for that vid, video. Karin Nichols, please welcome on stage. Now, I've had the opportunity to follow NOTE, from—as an outsider for the last 20 years. I've been extremely impressed with what you guys are doing and specifically in Torsby. And like to hear your, we should see your presentation on, on growth and expansion.
Thank you.
Please.
Hello, everybody. Well, I was here two years ago telling you a little bit about Torsby, and telling you that we were growing, and we had a bright future. Two years later, we still do. We're still growing. We have a very large expansion, and we've spent the last two years investing, doing small and large changes to our factory, making everything more efficient, more focused on the customers. Of course, this is leading to even more expansion. So, I'd like to go into some facts about our site. We have the last 12 months, SEK 762 million in turnover. Okay?
...
Okay. And 270 employees. And of course, as I told you, we've, we've been growing for quite a, quite a lot of years, five, six years, I think. Torsby is focused on rugged products, which means that the products that we produce are supposed to be used in environments as in the sea, in the air, where it's very shaky, where it's very dirty. Typical areas where electronics don't survive, we produce these products. And to do this, we have to have a lot of different processes to be able to protect the electronics. We do potting, coating, gluing, everything to be able to ensure that the products will in fact survive what they're going through later in their life.
And this means that we have to have a very high technical competence within our organization to be able to help the customer solve this problem, because every time the customers come with new products, there has to be a new solution how the electronics are going to survive. And I think this is one of the core reasons that we are so successful. Of course, we do the SMD, we build boards, but we've also always done a lot of box builds with our products. And this, of course, going back to being with core products in harsh environments, the customers have always been very interested in how to secure the products in some sort of cabinet or joystick or display or whatever it can be.
So we have a very long experience of different processes to in fact get a very high quality level.
I think one of the things I've been following you for quite some years, and I can see that the headcount growth versus the revenue growth that you're growing revenue much faster than you're growing your headcounts. And I know that you have very, very skilled employees in Torsby. Could you elaborate more about that?
Mm-hmm. Well, as I said before, we have a very high level of technical competence, and that we've focused on for a lot, a lot of years. This is for two reasons, really. The first reason is that we have to be able to invest in machines that will do the job, which says that automation is one of the lead words. We do that not just to have a brilliant factory. It's for two reasons, really. The first reason is that we put in machines where the workload is very simple, to be able to take the employees and put them into different works, which are much more complicated.
Mm-hmm.
This means that we can have we can keep the employees within our factory, and of course, the more experienced they are, the more we get out of them as well. So this is the first reason. But the other reason, of course, is that, I mean, with machines the quality levels go even higher and of course, the cost reduction will come. And we often say to our customers: "Okay, let's invest and split the cost reduction." So we're happier because our OP goes up, but the customers are also happy because their costs go down. So that's really what why we we've been investing very, very quite a lot the last five years, and we will keep investing in the years coming as well.
But isn't it so if I were to add, and Johannes alluded to it as well, 20 years ago, the OEM started to divest their manufacturing sites. Now, you have an enormous amount of skill that you can actually help the customers with. So hence, the complex products that you're able to build and the value that you can provide to the customer as well is really high. I know your Torsby site is very well seen in the industry for being able to cope with ruggedized and complex products. So that's really interesting. It's really interesting to see that investment that you're doing there for-
Mm.
both the people and the profitability.
Well, it has another positive side as well, because customers with complex products, they often need a supplier with high technical expertise. And when they do get that, it's harder for them to move the product somewhere else. So this means that we get a more stable turnover, and we grow, often it's easier to grow with customers like that.
Mm.
So for us, it's been key. We have a very, very stable turnover-
Mm.
Even though it's increasing, but it's very stable even through different years. And we're growing. The growth that we have is through our customers.
Yep.
not due to new customers, even though we do have one or two new customers, but mostly to the customers that we've been having, that we've had for 5–10, 15 years.
Yep. Yep.
Looking into different processes that we do have, a lot of them are the same as throughout NOTE: SMD lines, selective soldering, manual box builds, potting, coating, X-ray. Something that we do more in Torsby, I think, is that we offer the customer the more difficult product you have, of course, you're interested in more traceability. And that's something that's key for us customers, and that's something that we've been working with for quite a lot of years. And the last one or two years, as you saw in the film, we've focused on warehouse efficiency.
So we have an AutoStore, which basically we put in all different components, except for the ones that go in the SMD lines. And then we've also expanded with AS/RS towers. It's a nice word, but it's really huge cabinets that hold SMD components, which are often reels that we have in these towers. And the efficiency compared to manual work is enormous. So we've done those things the last 2-3 years, and we've seen quite a large impact looking at efficiency levels.
Now, you're also hearing you have slightly different-- you present slightly different segments than NOTE in general is reporting on. Could you elaborate a little bit more on that for the-
Well, I think every NOTE site has their sort of core competence, and as I said, ours is, is, is the rugged environments. So we have four segments, sort of sub-segments to what Johannes showed. We have, Defense customers, and we have, Medical customers. Let's see, Defense, Medical, and we have Heavy Vehicle, which more or less you can say is, is automotive, but it's not quite automotive. Heavy vehicles is, is something else. And then we have, Green tech. And the thing that makes Torsby, something of a special site, I think, but is that we have growth in all four.
Yep.
A lot of these customers that we do have in these segments are very, very stable.
Oh, it's, it's really impressive, seeing the growth over the years, so.
Okay, and going forward, because of the rugged products and because of the extremely high levels of quality that the customers demand from us, this means that we have a lot of different standards. We have 9001, that's everyone has that, so that's not that strange. And 14001, that's normal as well. But we have a Med tech standard, and we have FDA license-
Mm
... which is for, for medical, medical standard that products that go in America. Everyone's heard of the FDA?
Yeah.
In fact, they're coming to visit us in, in January, so that will be interesting. We have TS compliant, which is for automotive, which I think nearly all, customers within, heavy vehicle have the use of, of TS. And, the last one is, ISO 45001, which was implemented this year. So we have a lot of standards, which means we have a lot of routines. ... and we're audited nearly every week from, third parties or customers. So this means we're, we're not just, we're not just having the certificates, but we're, we're, we're using them all the time. And I think that's one of the, the other reasons that we're so, successful, is that we, we, we, we do it right from the beginning.
Yeah. And you mentioned also that the track and trace being a comparative advantage, knowing from all those industries that it's a very strong demand for all customers.
Yes.
Yes.
Absolutely.
Yeah.
Going forward, you can see here the sales from 2019– 2027. We have a lot to do going forward. We are expanding. At the moment, we can see that heavy vehicle and industrial are large. Industrial in there is... Heavy vehicle and industrial are one of our two customers at the moment that are growing. Looking at current customers, we have Defense customers, and we have Medtech, and we have heavy vehicle. Now, these current customers, they're the ones that have about 90% of all the increase in sales.
Mm.
We've been working with them for many years. I think when we looked into the growth plan that we've done, we'll double our sales in the next 3–4 years, and this is an enormous hit on the factory to grow it this much. But we're handling it, and I think later on in the presentation, you'll see how we're going to handle it.
But adding as well, the way that you're handling it is with automation in the right way, so you're able to upskill your people and use your skilled employees in-
Yeah
... better locations.
Absolutely.
Yeah. Which-
So what we do is we try and invest in machines that are very new in Europe, so that we can use these before the customers demand the machines. So we usually, and that's why the customers love us, because they want us to show them how to design their products, so that they will be able to use the machines that we've bought.
Sure.
So that's what a day-to-day basis looks like. So to be able to handle the increase, we are going to in fact build a new factory. And the factory will be 7,000 square meters, which is more or less the same as we already have now. So we're going to double our size. The new factory will in fact be semi-detached to the factory that we have, so we'll be in the same place. There will be a corridor between them. We haven't set the date yet.
Mm.
I hope it will be sometime next year, but we're still in planning. CapEx in recent years has a bit been about SEK 110 million. We have 4 SMD lines. The last line came in last month. We have a clean room, Class 7. We have, as I said, invested in an AutoStore and AS/RS towers. And I think usually when you invest, you want to invest in production. You want to see a straightforward efficiency level. And often enough, the investments in indirect machinery, like for material handling, is sort of very hard to get through, to get it accepted.
But we've done that, and I'm very proud of that, and I think that all major EMS companies will follow because this is... I don't know if you're aware, but I mean, 60% of all our products are materials, and we have about, just in our factory, we have about 15,000 different components, which means we have a lot of stock. And to be able to handle that efficient is probably one of the most important things in this industry. So I think many will follow.
And I, adding to that as well, I think, the way that you're doing it allows your, your staff to be more focused on the value creation than just-
Yeah
... moving things around. So-
Absolutely
... it's also with all these investments and all the certifications that you have allows very complex customers to come and get all their technologies fulfilled because you have everything in-house. So it's the requirements from the heavy vehicles versus Medtech is similar, but not the same, but you can cope with them all. That's really impressive.
Mm-hmm.
Um.
Yeah. As I said, recruitment can be tricky.
Mm.
I mean, I don't know if all of you know where Torsby is, but it's 3 miles from the Norwegian border, and it's right out in the countryside. But we haven't had problems recruiting.
Mm.
And I think our factory is one of the places where people want to work because there's no jobs there that are too easy, because we've already automated those. So I think most of the people at our factory are very, very glad where they're working because they have, even as a blue collar, a lot of skills, and they have to use them. So I think there isn't a problem investing in a new factory or investing in factories that are right out in the countryside, because I think we have a lot of loyal employees, and I think that's one of our success factors as well.
Mm. Which also shows on the products. You know-
It does
...about pride in working and
It does.
It's interesting.
It does. I took the liberty to ask some of my customers on comments on our factory. We always have quarterly sit downs with our customers, and once a year we do a self-assessment with them. And these are not the three largest companies, but three of the larger companies. Parker is a customer within the forest industry, and they say, "This is, this..." I'm very proud of what they said because it came straight from the heart, and I just want to read the comments to you. "NOTE AB 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 technical department." And this is a customer that has TS demands, which means that they have very high demands. Breas is a medical customer. "NOTE Torsby is a critical partner for quality and growth for medical device manufacturing. I and my team have audited NOTE in 2019, 2021, 2022, and 2023, and are impressed by how well NOTE have maintained their strong quality management system, cleanliness and orderliness, at the same time that the factory and business are expanding.
We are particularly impressed by NOTE's investments in automated, scalable solutions for logistics, material handling, and quality control, which lay a solid foundation to meet the rigorous quality requirements of the medical device industry." So even though some investments aren't as flashy as those to be in production, the customers see the investments, and they see the real reason why and what positive effects they can have.
Both Parker and Breas is known to be very demanding.
They are very demanding.
Very, very demanding and very skilled customers.
Yeah.
This is really good signs from the customers.
It is. And not least, but last, is one of the customers that we don't talk too much about, but they are one of our reasons that we are expanding as we are, which is Saab. And they say, "NOTE Torsby is chosen as a supplier and a manufacturer for Saab's growing demand." We all know why they're growing. "Of more complex electronics, they have showed over time their capability and the ability to understand the customer's demands." And I think that's fantastic, that they gave this comment, but they usually want to be very not seen, and we're very happy to have them.
But coming back to the fact again, that you have invested so much into your facilities and the skill set of your people, so the capability to handle the broad range from Parker of the TS requirements from automotive, to Breas for the Medtech, as well as the complex systems of Saab is-
Well, I think, if you look at it from a little bit of a distance, the combination of the technical expertise that we have, with the combination of NOTE investing, the amounts that they do, that combination is just fantastic for the customers because they see that they can grow with us and there's no difficulty. And of course, having all these standards, and so on, I mean, that's sort of a basic need for us to be able to survive-
Mm
... to be able to produce these products. But I think that the customers have seen what's been happening in our factory the last five years. So I just have to say thank you very much, Johannes, and the board, for all the help that we've had.
All these customers' engagements are, of course, long-term.
They are very long term.
Very long term.
As I said before, it's difficult to move products that are implemented and in serial production, and it's also difficult to change supplier when you have this technical demand. Also, I've seen that through the years that, for example, Parker, when they design their new products, they design it so it will fit our site, because they know that we have to use these components, and their machines look like this. So in a way, with these long relationships, they tend to be even more longer lasting relationships.
I think we focused on this for the last 15 years, working with our customers and trying to ensure them that we're the supplier to grow with, and I think we've done that.
Yeah.
The last picture here is a picture of the new factory that we are hoping to build next year. So 7,000 square meters, and we'll be semi-detached with the factory that we do have. And this will mean that we, in fact, can keep growing.
Mm-hmm. You mentioned all the... It will come also for the sustainability target, but your plan is to make this very, very sustainable, following all the requirements there?
Well, we're looking at solar panels. We're looking to use the materials that's, of course, environmentally good, so we're trying to do everything we can to be able to make this factory a major factory for Note, so that everyone can be proud of it. And I think all customers now are aware of the sustainability.
Yeah.
These questions have already started to come. So I think customers are more into sustainability questions and compared to two years ago.
Mm-hmm.
I think, in fact, sustainability, that's one of the things that everyone has to work with and will be convincing, I think, in the future, where customer place their products-
Yeah.
So that... I'm quite sure of that.
Yeah. No, and also those, the investments that you do in equipment and the way that you're working to reduce waste on the shop floor, throughout your entire operations is really impressive. At the end of the day, it's all about reducing waste in every corner.
It's not always on reducing waste. It's also how to make the world a better place.
Yeah.
I don't know if Johannes has told anybody, but we're in fact having bees on our site outside, so we'll be offering our customers honey, NOTE honey, going forward.
Yeah.
And this is just a little sort of jest, just to tell that, you know, try and take care of some sort of animal or insect that is having a hard time surviving. So we're doing our little part.
Yeah, that's good. Good. Should we have a Q&A session as well with Karin, if there's any questions from the audience? There's a microphone that can be passed around. Yeah. Okay. So I'll welcome Johannes on stage to go through the financial and sustainability targets.
Yeah. Okay. Thank you, Karin. No, I have not mentioned your bees. I have to be honest on that. It's something that I will start to do now, when I know it, and you have told me, but sometimes I have too many things on my mind, so that has slipped it. But I think it's a very nice thing to do, and I think some of you were in Torsby. We had an open house. When was that? A year ago, a little bit more than a year ago, when we actually introduced the last extension we did. What was that? 2,200 square meters, 2,100 square meters. And at that time, we thought that it would be lasting for another five years.
Then the reality struck us, and the growth has been exceeding our expectations by far, and that is very, very good. So thank you, Karin, for this update. We've also had a discussion. Maybe we should have this Capital Markets Day in Torsby. But then someone said that, "Yes, for those that take the time out of the schedule to go there, it will be interesting. But for the rest of us, that doesn't have the time to go there, it will not be as interesting." So we have. But we can have a vote of that when we close today's session, if so.
But I think Torsby, for those that were there, very impressive site, and, and, I have to be honest, it has happened a lot since that time as well, so, really interesting. Okay, I will go through some, or our, financial and sustainability targets. Sustainability is a topic that, for those that are following public listed companies, there is a new protocol from the European Union that we have to live by, and, and that's going to come into force in 2024. During 2024, we will also update our sustainability targets when we learn more.
Today, we are stating that we will be carbon dioxide neutral, based on Scope 1 and 2, meaning that any, every, energy that we consume within our premises, we will either buy it from renewable sources, or we will compensate for that, where we cannot do that. For example, China and UK, you cannot buy 100% renewable energy. You get what you get, and that, in some way. And then we get the certificate based on what did we actually get, so to say. In all other countries where we operate, we can buy carbon dioxide neutral energy. And the number for 2022 was that 82% of the electricity we used came from renewable sources, and then we did the climate compensation for the rest.
What we also have said for this is that we will start to invest in solar panels on our premises. In our Bulgaria site, it's completely the roof is completely populated with solar panels. We believe that within the coming years, we will do what we call real estate projects, meaning that we will extend Torsby, we will extend Pärnu in Estonia. We will move premises in Lund within a few years, and all those factories we will cover them with solar panels when we do these investments in the sites. We believe that after those transitions, we will have 20% or more of our electricity that we consume will be produced by our own solar panels.
This is something that we believe very, very much into, and this will be. Over time, we will have, of course, more and more energy produced by ourselves. I don't believe that we will get to 100%, but we will get... The further we get, the less constraints we put on the energy productions outside ourselves. We also claim that all our sites should be work environment certified, meaning ISO 45001. We have all our old sites, except one, are currently certified. We have three new ones that we have not yet been able to certify. We have said that they should be certified within two years.
That is the timeline that we believe that it takes to acquire a site, to integrate it, and then, so to say, get it all operating as you want, and then you start to, to shape it the way you want to shape it. We can do it quicker, but it should happen in some kind of due course so that we, that we don't push on too many new things. We want to keep the business running. We are, we are a company that are proud of how we operate things. So we, we are more concerned of how we operate things rather than, than just pushing things into because it should look good. It should make sense as well. So two years is, in my opinion, a relatively good ambition. As I said before, we have...
For me, it's more important that we have our most faraway sites being work environment certified. So our Chinese operations is certified since many years. Our Bulgarian site is certified. The ones that are further away, you have less control over, and then if we have a site in Sweden that where we have not yet done it, we know that we that we treat them fairly well aligned, so those are less tricky. So we focus on the ones further out, and then we work closer to to us. So that's how we think. And we will, of course, fulfill the CSRD Directive that that is coming, and so on. So you will, at our year-end report for 2024, you will be able to read a lot more about this because that's when it all will be public.
But the work starts. Well, I would just—if I say the work starts now, then I think Karin and the team at the office will be a bit unhappy with me, but I say that the reporting starts at January first, but a lot of work has been put into this area. I can assure you of that. In some ways, I really appreciate those kind of initiatives that is done, but I also think that the European Union has a tendency to launch things that are not ready to be launched. Then everyone has to cope with it, and then they adjust for the coming years, and then we have to redo a lot of things. So I'm not 100% happy with how they enforce this before it's really good.
But it will probably come something good out of it, and, and at least it will sort out the ones that doesn't comply, and that's, that's something that is good. But we're very keen on this, and, and I can also say that quite a number of our customers are asking us how if they can reuse, how we state our, our sustainability vision, what the strategy is, how we, how we work with sustainability in our operations, because they want to mirror that in their marketing. And I think that's... Whenever you have a customer asking you that, then you know that you do something good, or at least good enough for them to, to, to copy. And for me, that is, that is a very good sign that we have, still have a lot of questions of that.
I can also say that, going back to Karin's presentation, we have a number of customers that bring their board and their customers to visit us. Then we also know that they feel proud of what we do. Then you also know that the likelihood that they will go to somewhere else is very low for the next generation because they are proud of the factory. They want to show their owners and their customers how well it look because they feel that this is, in some way, our factory. And I think we have more and more of that, this is also very pleasing to see. This is sustainability.
Yeah.
Moving into financial targets, I think that's especially today, after the information we did yesterday. The targets that we take on is that we should continue to grow. We believe that, as we said last time, 15% year-over-year growth is what we feel is sustainable, primarily coming from organic growth. We will add acquisitions to top that out.
But if I may interrupt there as well.
Yeah.
Your previous target of SEK 5 billion in 2025, how do you see upon that?
We in order to work with the three-year growth plans. What we look at for 2025, we will reach somewhere just above SEK 5.5 billion–SEK 5.6 billion. That's what we're looking at. That does not include any acquisition, that does not include any new sales that we're not aware of. That's where we are aiming at the moment. We are going to exceed that, the 2025-year objective.
Which is really good. But, follow up, based on the guidance for Q4, how would you get back to increased profitability?
Yeah, that's the what do you call it? The million-dollar question.
Yeah.
No, just to be clear, I think it's what has happened is that this. When you have a quite quick reduction of sales, it's a bit hard to compensate for it. And we had, at least in Q4, we see also that we had most of the costs were already in the books, and then we had some late delays of volumes, and that is hitting us a little bit. So we also see that some sites where we have seen reductions, we are laying off people and so on, and the cost savings are coming a quarter later than the reduction, basically. So we also see that some of these. We have some lagging effect of the cost reductions that we have done to mitigate the lower pace that we have in some factories.
So we believe that the operating profit. You can say that the margins in the customer orders is not changed. We have not taken on less good business. We have not increased costs that we haven't done in the past. So we see that Q3 and Q4, yes, they are lower than we have expected, they are lower than last year. We see it as this bump in the road, and we still believe that with the growth that we are expecting and operations that we are conducting, we should get back to where we were two quarters ago, very, very soon. And that's what we how we try to guide also for when we did the reduction of sales yesterday evening. So the ambition to hit-
Yeah, because it's not lost sales-
No.
It's delayed sales.
Yeah, yeah, for sure. It's everything that we pushed out of Q4 is going to be sold in Q1-
Yeah
... in early Q1, so that's not. So I would say that you can take two ways of looking at it. You can say, "Okay, two quarters in a row with reducing margins, where are we heading? Are we going sideways," as I call it, meaning that we're going the wrong way, "or is this the adjustment time that we're needed to get the business in shape to continue to growth?" And I would say that we are looking at the latter, or the second part of that, because anything that we see is that the customers are still growing. We also see that the customers' demand on their markets is stronger than what we sell to them.
So we see that the destocking activities that we have talked about is continuous, ongoing, and that activity will come to an end. And when that do that, we will first, we will get back to selling at the same level as the customers, and then we expect the customers' markets also to continue to normalize the longer 2024 continues. Because the economy is expected to turn around a little bit, even though the turnaround will not be very fast, but we even going back to normal is going to be a big increase compared to where we stand today. So as of what we see today, what the customer is telling us, we are seeing that the growth will continue in 2024, and it will take up more speed in 2025 and onwards.
That's how we see the market. We still win a lot of customers. We still win new business to our existing customers. We are taking the business at similar margins as we have in the past. So there is nothing that has changed more than that we have slowed down the last two quarters, and that has been hitting our margins, actually more than we expected. So that is something that we will learn from and do better in the future. Continuing, we say profitability, and it, the operating margin should exceed 10% and continue to increase during the period. And here's a bit... Where, What is reasonable to expect?
I often say, "Okay, let's take 2023 as a base year." We will do four—yeah, just say we do SEK 4.25 million in sales. We do, I don't know, 9.6, 9.7, if I take the average of what we guided for and annualize it. And then you add SEK 3 billion in sales with the 15% fall-through effect that we have seen, that we have had every year, except for the last two quarters. If we continue with that, we will end up at mathematically around SEK 11.6 or something, SEK 11.7. But that's also with the push down. I think we were. This, the last half year, we have not been mitigating the lower sales on the cost side as hard as we could have done.
So I think it's the run rate is actually a little better than what we're reporting. So say that with the guidance of 7.5, if we do that organically, I would expect us to reach between 11.5% and 12%. That's where my expectation is. But on the other hand, there's some customers that will look at this. If I say we put the target at 12% or whatever, for the next day, they will start to challenge me on that. Should we really make that high profit? So therefore, we say we should be exceeding 10%, and we should have a continuous growth. And if everything goes as we expect, we will land somewhere around 11.5%–12%. That's how we plan it.
And also you can say that, "Okay, how can you just stand here and say that?" Because that has been the reality for the last 5 years. Every year, we have seen that we have delivered on the same numbers, we have delivered on the same improvements, and so on. And I will show you on the next slide why we are so convinced that we can continue to do this. So we're not that worried that we will reach there. There can happen a lot of things there. If you read the financial papers, we talk about the black swans and all that kind of things. If there happens something that we don't know of, that can change the way this will look, but as we see it, it looks very promising.
But also your customer portfolio is very broad as well-
Yeah.
so your sensitivity for
Yeah. I mean, the single customer dependency is very low.
Yeah.
This year, we haven't... Last year, was it 6.5%, was the largest customer, and this year it will actually probably be slightly lower.
Mm.
6, I would assume. I tried to calculate in back of my head and remembering where the customer will end up, maybe not even 6%, actually, but in that, in that range. So, and we still believe that this is where we will be heading, and the beauty is that the top three customer last year will be out of top five this year. That is quite interesting. That's the first time ever that that has happened. So that also gives you... I talked about the, the changes that we are seeing and how rapid they have been, and, and so on, but that also give you a flavor of how that looks. Then again, I think that a few of those top three will become back to, to, the top three next year. So it's a lot of changes that happens and, and so on.
I mean, the other ones that are in the same industry as we are probably see similar movement around the customer base. It also comes a little bit when I think we had very good growth, 2021 and 2022. We managed to get more volumes out there. Some of our peers had much weaker growth in 2021 and 2022, and they have been growing faster in 2023, so I think it's more of if you how much delays did you have when you left 2022, and that has shown some numbers around. But we feel comfortable in that our business is solid, our customer base is very strong. They are growing. We have customer in very fast-growing fields. We are winning customers in new fields. So we are quite confident that this will happen.
And, we also show two more financial targets that we haven't touched, and that's capital structure. We should have a strong balance sheet, minimum 30% in equity. And also dividend, something that comes in every year, this has not changed. We have a board of director that are looking at how dividend can be exchanged out to the owners, and we have a few of the larger owners sitting here, so I think that's a question more related to them rather than to me. But, the dividend policy is unchanged, and, yeah, we will see where that ends up. Continuing, I've shown you this slide. I think I would say this is my favorite slide of this presentation because this is so simplistic, so even I can explain it in a good way.
This shows our cost elements in some years, and also shows our operating profit margins. You can see that white collar cost has went down. You can also see that this also supports the where we are. We are seeing growth is slowing down, and then the cost elements are slowing down in improvement. Very. It makes a lot of sense. So white collar cost has went from 13-point-something % down to 7.5 or something. Very, very impressive. I think we can do more. I think we the white collar cost will be significantly lower if we look four years ahead. That's what I think. Other costs, yeah, we saw 2022, it went up a little bit. A lot come to electri-
The electricity was really expensive in 2022, slightly lower this year. Direct labor costs, also here, I think we have not had a fantastic utilization of direct labor. We have had reductions in some sites. That means that we have run some of them with overcapacity in from time to time. That also reflects in that the direct labor element has not been reducing the same way as we have seen in the past. And then we have depreciation, which I see is the price for winning the all other three. I think if we haven't invested the way we have done, we would have had significantly more direct labor costs, and that would have put the burden or a limitation of our ability to earn money.
And all in all, this, in this equation, we see the dotted line of the operating margin, how well that corresponds to how the costs element are going down, and then the profit goes up. Also, here, we see that this trend is not linear, it's a bit... Yeah, it goes a little bit, in. So you can say that some, some quarters and some years, it's, it's not growing as fast as you would like to see it. But that's the trick with this, that it's even though if you extend the, the graphs in a big diagram, it looks very straightforward, but it's a lot of things that happen in every quarter and every month, in every factory that are affecting this. So the sum of all this is what what builds up the bigger picture, so...
But I think this is one of my favorite graphs. I look at it every month to see where are we and how are we progressing on this. So just to be clear, we're still believe that also with the weaker Q3 and Q4, we still believe that our local costs this year will be probably the lowest ever, or at least in the same level as last year. So the cost element of our P&L continues to shrink, even though the growth has been slightly lower. Very important. One other of my favorite graphs is monthly sales, and I've shown this - this is the only time I show it, actually, because I think it takes so much time to explain, and everyone should know.
Because often you, you tend to think that we have a seasonality effect. Q4 is always higher than Q1, and, and so on. I say that our business is growing, or since we're growing year-over-year, we also grow month-over-month as a trend line. So that means that if you look at the black dotted line, you see that we were, in, in end of 2021, we were doing SEK 275 million month by month. And then you go over to Q1, the year after, in the, in the black, full line. It corresponds to similar level of sales. So it's not that we have this. If it would have been a seasonality trend, we would have been lower in Q1 in 2022 relatively to Q4 in 2021, but we're just continuing in 2022, where Q4 2021 ended.
So you should read this, that it should always grow over year-over-year, slightly, so the left-hand side of the graph should be higher than the right-hand side of the graph. And then we have the big dip in July is, of course, related to Swedish vacations, where Sweden is a big part of our sales, and that means that we will have lower sales during the vacation. So that's—I think that, that is the only, as I call it, seasonality effect you see. What's interesting that you can see that the last month of every quarter has a tendency to be the highest month in every quarter. The only December, yeah, December in 2021 was the highest. December in 2022 was at the same level as November.
December is a short month, but still we managed to get a lot of volume out in December. So I think this is a bit how you should read this, and I always look at it because I want to get the feeling, are we really going to start the next year where we'll end the last year? When if the end of last year lower than what we think of the first quarter. So this is just to get my mind in the right, how should I say, shape of how it looks. And then we also, one seasonal effect we have is, of course, Chinese New Year in February. That is, you can say we close our factory in China two weeks.
China stands for maybe 15% of the sales, so we lose maybe, yeah, what is that gonna be? A few percentage, but it's still, we still see the effect. Then again, normally, March is the strongest month in China every year because they try to catch up, and everyone works a lot of overtime to do that. So it's, you can argue if that's an effect, but February, it normally is a quite low month compared to others, based on that. So I think I like this slide.
You, you like your numbers. That's really good.
Yeah.
Yeah.
Moving on. I think we are, for the sake of time, Growth for us, I said that we have a growth strategy. That means that we are keen on growing, and what we mean with that is that we try to capture the growth elements as we see that we can do good work in. Existing customers, for me, that is, I've said it before, that is the best way to grow, even though I love to have new customers. But if you have an existing customer putting a new program to you, then they are telling you that you have done a very good job with the rest. That is, they are approving your performance in a way that they are prepared to put more business to you.
If we manage to sell more, we have had a sales guy that convinced the customer to, that we are good. Then we have to prove that, but if we grow with existing customer, that's a proof of that we're doing something good. And often, I mean, what Karin showed on, on these three customers, that is the thing. All these three customers are placing more business to us. All of these three customers are growing, and they are growing just because they are happy with the, with the performance that we do. Or not Karin's, that, that we do in Torsby, so maybe not what I do, but what, what they do in Torsby. But that's existing customers for me is, that is, more pleasing than anything else, even though I love to have new customers, but that's another thing.
New customers, it's that, I mean, they every time we win a new customer, they put their future in our hands, as I call it. So we are very sensitive on the customers we take on, that we should be able to do a good job, and that they should feel comfortable in being a customer in our, in our portfolio. And so, and also that is... We have gained a lot of, I would say, good customers, but then I repeat myself, but customers with very interesting products, with high demands and, I mean, we'd win them in competition, so for me, yeah, that is also very important.
What we have done here is that we have even though we have grown, we still believe that customers that are doing SEK 10 million+ or even SEK 5 million+ in annual sales are good customers. Many companies that are growing are cutting the tail very high, as I call it. So they want to. I mean, if you're now if we have moved from SEK 1.3 billion up to SEK 4.3 billion in sales, a lot of those companies are cutting the tail maybe about SEK 10, 15, 20 million. They want to focus on bigger accounts because that gives more growth numbers when you win them. But you're surprised to that, and bigger accounts have lower margin, more, that's, that's very often the case.
The best you can do is to win a customer when they are small, make them love you, and then they grow, because then they will not leave you, and then you can have slightly better margins over time. But that's not always the case either, but that's, that's one way of looking at it. Acquisitions, I haven't spoke so much about the acquisitions, and I will show you next graph is about how much the acquisition, or the acquired growth has added to NOTE's sales over the last five years.
Okay, I just got a question from the audience on that, so maybe I wait until the next slide on that.
Yeah, you can do that.
Yeah.
Yeah. Okay. I always talk about what is, why do we acquire? And how do you acquire? This is an industry. There is a lot of consolidation left to be done. I think the number from this EMS day I visited two weeks ago, it's like 2,500 EMS companies in Europe. Just remember, 2,500, that's a lot. Some are very small, and some are very big, but. And I would say that 95% of the number of these EMS companies are single site with one single owner, that are often getting a bit old, and they most likely do not have sons or daughters that wants to take over the business.
So there is a lot of business going out for sales. So, so acquiring sites is easy. It's very hard to acquire the right ones, and, and we put a lot of energy in finding the right, companies to acquire. And as always, I, I will move to the next slide here because I brought up some. Why do we acquire? I think it should add strategic advantages to some of our, our, of our, key objectives. Add new markets, I mean, that's something that we, we still believe that that's very important, even though we have basically not acquired ourselves into a new market in many, many years, because UK, we are, we are present.
I would say that Bulgaria is not a market, it's a production facility rather than an entry into the Bulgaria consumer or end customer market. So we still have a lot of uncovered ground there. I've always thought about Germany, a very interesting country. With U.S., also very interesting, but very tricky because there's a lot of businesses that are making very, very low margins, having old facilities, old management structures, maybe they share facilities with others. It's not so easy. You don't want to. To buy it is easy, then to maintain and make something good of it, that's very tricky. And we have passed on a lot of opportunities in those two markets over the last, say, three, four years. But still, we keep on looking.
We will, sooner or later, we'll find something that we really believe is good. Because if you look at Germany as a market, I think it's stated that it's like 12-13% of the European EMS. But if you look at the greater Germany, because Germany have moved into Czech Republic, Poland, Bulgaria, and all these countries surrounding it, if you add all these close proximity, you have 40% of European sales. So Germany is so important to be present in, because then we would also get access to what is outsourced from the German EMSs into those regions. So Germany, the German market is much more than what you see on these graphs.
I talk a lot about Germany, and then I never had a factory there, so I might just stop talking, but it's so important to get in there, and we will. It's, it's just a matter of finding the right, the right target.
But, talking about acquisitions, it's today added about 25%-30% of your growth.
Yeah.
How much of the growth do you expect to come from this in the planning period?
I mean, we don't quantify it, and we are expecting to have an element of it, but we doesn't count on it to be more than what we show here. So say that 25%-30% of our compounded growth that we are looking at for the coming four years or for the planning period should come from acquisitions, give or take. And as always, if we do a larger acquisition, we will always update the guidance and so on, because that's how we do. And I repeat it, that we don't guide on things that we do not own. So whatever we guide on is what we have in our footprint at the moment.
This long-term objective of SEK 7.5 billion, yes, we believe it's an element of acquisition, but it's fairly low.
Yeah.
But also capacity, Bulgaria is a typical capacity expansion. Or you can also say that it's a— technology might be the wrong word, but it, it's a cost base that you're after. It's not only capacity, it's also cost. The cost element is important. Then we think, okay, gain momentum into targeted segments. Yeah, we, the iPRO acquisition in U.K. was we wanted to get access to more EV charging. That was fantastic for a year and a half, and then the market started to decline, and currently, they are doing less good than they were before we took them over. So yeah, the EV market, you can always call it a, almost call it a collapse in U.K.
I think the number of sold units is less than half today than it was before they took away the contributions from the government in Q1 2022. So it's those kind of political things are having a big impact in some markets. But nevertheless, we still believe that we need to take our bets in where we want to be, and we still believe that this will be a good acquisition over time. I can also say that the first, say, two years, we gained half the purchase price. So you can argue if it's good or bad in some ways. But I also wanted to show how much roughly that the acquired companies has contributed, and this is only reported sales, so it's not restated.
So the run rate of 2023 is higher since DVR and Bulgaria is only part of 2023. But, yeah, we still believe that there's a lot of possibilities out there.
Yeah.
My last slide, and this is just with ... I want to show a little bit how we think that the growth will come, and 2024, we have guided for, so that's where we are. We talked to you. You asked me how 2025-
Yeah
... was looking based on where we were. Yes, this is, this is based on our current footprint, on our current factories view of what, how they state 2025, also 2026. So we can say that up to 2026, at least, we have the customers, we have the programs, we have the products, we have the customer's view of growth, and then it will take us to this number, and then we just extrapolate that into 2027 to show this picture. So it's not that we are sitting at our head office and thinking, "What is a nice number to show to you?" And then we also say that, "Okay, how have we performed?" The last five years, we have done 20% year-over-year organically.
So we have tripled the business in 5 years. Like, the growth, when I was calculating it to another presentation I made, we had done 230% growth over 5 years' time. And now we're saying we should do 85, 80% over the next 4 years. I still believe that we... My personal view is that we will reach the 7.5 earlier. That's, that's what I believe, because that's what we have done, and I don't see that we do things differently. I don't see that we do it less good. I don't see that the customers are appreciating us less, much, and so on. And I also, I see a few of you, but we also have the, our fantastic employees that will make this happening, and we have a young management team.
I think the other three is here. We have managing directors in the sites like Karin, so convinced and dedicated in what we do, so I'm very optimistic.
But these numbers of growth is combined with your favorite slide-
Yeah
... with the improvements on cost. That's really promising for the future. It's... And also remember that the EMS business is a long-term engagement with customers. It's hard to gain new customers, but once you gain them, you deserve them.
Yeah.
Can, is that a good statement to make?
I think it's very hard to generalize. I'm not so much of that, because behind every customer, there's a relation, there is a discussion, there is always sometimes an argument of why this and that. But it's. I think it comes down to a few things. If we can continue to deliver high on quality, if we can continue to be achieving our customers' expectations on flexibility, on operational performance, on capacity increases, and so on, they will remain very loyal to us.
Mm.
If we start to be failing on any of the operational things that we do, then we'll start to lose our momentum. So even though it may sound, we talk a lot about fancy things, how we do this and that, but everything comes down to: When do we deliver the next batch? Is it gonna be 100% quality? Are we, are we helping the customers to, to handle their last time buy issues that the component suppliers are giving them? When we stop doing all these activities on every customer level, we will stop growing.
Mm.
The operational work that we do in the factories, that's what makes my life very easy. I think that is really important to know.
Yeah. No, and Karin alluded to it as well, the customer statements of happy customers engaging with your staff-
Yeah
... is also a key thing.
Yeah. We should also say that, for me, customers are... Or business is relations. If the customers wants to have a relation to us, and you have to be present, and I often say that I might meet too many customers, but I think that's so important. So my family thinks I meet too many customers because I'm never home. But that's how I am. I think that's what makes this so important because that grows the trust between us and the customers, and that is what will help us maintain and get access to the next bid and so on. So I think this is so important. I will stop here. We have 16 minutes.
16 minutes to go, and a Q&A session, so-
Yeah. Should we start in the room?
Yeah, yeah. Let's start with the room. I have some questions coming in from the web as well, but...
Thank you. First question may be on the visibility for 2024 and your guidance. I noticed the range is maybe a bit broader than what we're used to. So could you just comment a bit on how you see sales developing in 2024? Do you see a slower start than a stronger end, or what is your current projection for that? And do you have some caution in the guidance for a weaker economic development?
I think that we are guiding. I think the economy at the moment is very weak. That is my personal belief. I think that is, if the sentiment gets worse, I think there might be there can be downsides. What we have always put the minimum level, and then we are most likely expecting to exceed that.
I think that it was, at this time, it's like, it's very tricky to be, so we instead of giving a very low estimate and say, "Okay, we are expecting to achieve that," we say, "Okay, our projection is to be in the middle of this guidance," and therefore we put a lower and a higher, yeah, estimate, just to be clear that we are expecting to be in the middle of it. So it's, I would say the lower estimate is if the economy is getting a little bit weaker.
Yeah. And can you maybe tell us a bit about which of your factories are having some problems right now in the, as you revised your guidance, I guess, Torsby may be to Defense projects, but is there something else that we should be aware of?
Yeah, and then we still see some of the sites in U.K. still doing quite weak. Some is doing very good. Estonia will have a quite slow Q1. We have also downsized that a little bit. China might have a slow Q1. We have some dialogues that can indicate in that. I think Torsby will have a good Q1. Lund will have a relatively good Q1. And Finland will have a good Q1. Herrljunga is a bit uncertain, medium, I would say. Yeah.
Yeah. Then one question on, you have been on the slide here, strong new win sales.
Yeah.
I think last CMD, you presented a number there.
Yeah.
Can you just comment a bit on the trend? Has it been similar to last year's levels or increased, or?
The way we measure, we have a similar or higher win rate this-
Yeah
... this year.
Okay. And then last one on M&A. We saw that one of your peers, HANZA, acquired Orbit One quite recently. I guess you also looked at that, but can you just comment anything about your M&A pipeline? And you mentioned Germany, et cetera. Do you have any active discussions with companies in these regions that you expect to close in the upcoming 12 months or so?
We can comment on the Orbit acquisition. It has been more or less on the market for some years, and we have looked at it. We did not feel that we had a good fit with them culturally wise, so we passed on the opportunity. I think it's a very nice company and so on. It's as good. It has a good heritage. I actually worked for one of the parts that they, that HANZA or that Orbit acquired some years ago with Flextronics. That was a very well-functioning site at that time. But so that is true. We were, of course, looking at that briefly. Yeah, we...
As I said, we don't have anything close to be implemented. I would be surprised if we close something in Q1. We always have a few interesting dialogues with some small and some fairly large potentials. Yeah, since this is something that if I say something more precise than this, we probably have to run around and have put up an insider log because we don't have anything signed, and we don't have anything close to signing at the moment. Some very interesting dialogues are going on. And as I said, we are an active acquiring company, so we get a lot of questions from these sales agents that are supporting the companies to be sold.
It's an area that we expect to be active also in 2024 and onwards.
Yeah. Just the last question on the CapEx investments in going forward, you seem to expand quite a lot of facilities here next year. Could you just comment anything about how much in investments you plan to make in 2024, maybe?
I think in terms of equipment, we are looking at a similar level as this year, maybe in the range of SEK 100 million-SEK 120 million. Look at Frida, she's in charge of the budget, so but she's nodding, so I'm in the right ballpark here. But in that range, and then, yes, we will start to expand factories, and in Torsby, we own it, so that will mean that we will start. We, that will be an investment. That's gonna be a discussion for the board and how we will, how we will scale that up.
But as we see it now, we will have no other option than to grow the site because we will not have space to produce what we have already taken on from the customers for maybe 2025 and onwards. So it's... If the factory is done, is ready, say, late 2025, we'll probably have some challenges to get the 2025 year volumes out, I would assume. But as I always say, this is... Capacity is different things because we can always sub-lease warehouses around, and so on, and then you can extend the factory, the production footprint. You can do a lot of things. It's not optimal. You don't want to do it, but you have to do it while you are expanding. Norrtälje is a good example.
We will take on the next, say, 1,000 square meters of a new warehouse, and that will—when we do that, we can cancel some of the outside warehouses that we are sub-leasing at the moment because we cannot fit the material in. So there is some—you can always do that kind of things. But Torsby, we might not be able to do it so many more years, then we'll probably have, we're producing in outside or remote areas, and that's not, that's very inefficient, so we hope we'll never get into that. But this is... So expansion in Torsby is on top of our agenda to make sure that it happens.
Good. Thank you.
... Any more questions from the audience here? I have some questions from the web. So, any trends over time in the number of dual sourcing among your top 10 customers? If so, how does that impact margins compared with other customers?
That's a very good question because it's. You can say it's a—I often talk about new started businesses and all traditional industrial companies. Basically, all industrial companies have dual or multiple sourcing. We might do one family, then someone else is doing the next family, and so on, and then we bid on basically next generation. So all those companies have already dual or multiple sources. When it comes to new companies with one or two products, they have a higher tendency to go single sourcing because they also often need help on the design, on the production design, on how you do board designs and so on. So those companies has a higher tendency to go single source.
I would not say that. I don't see that the trend goes in either way. It's very similar as we have seen in the last, say, two, three years. Margin-wise, we can have good margins where we have dual sourcing, and we can have good margins on single sourcing and the opposite. It depends a lot between different products and how easy they are to make. If it's an easy product, the margins have a tendency to be lower, because then even if you have single source, it's easier to move it.
But also coming back to the way that you're investing in capacity and capability-
Yeah
... because that allows you to be competitive on dual sourcing contract with customers, and-
Yeah
... to Karin’s point-
Yeah
- be able to produce according to customer expectations.
Of course.
Yeah.
Of course. But to answer the question, it's like, I don't see a change at the moment.
No, it is as it is in business.
Yeah.
Any other specific sectors has impacted your lowered Q4 guidance?
I think that it's years with where growth is lower, we have a higher force from the customer to push things out of the quarter independently, basically on which sector you are in. So I think that that push has been stronger than the last couple of years and also than we expected.
Mm.
I think it's not that one or two other sectors are weak. We have talked about smart buildings and anything that we sell that goes into a new construction of building, all those products are really low at the moment.
But they will pick up?
Yeah, they will pick up.
Yeah.
That would be the sector that I would say.
One question here from Viktor an hour ago. So, have you ever thought about producing products under your own brand? Well, from the EMS perspective, as you already own the manufacturing part, it seems that a low-hanging fruit, to think of it as the same way as food retailers who vertically integrate and sell their own brand, which enables higher margins. What would you take beyond that?
I often get this question every year, and I normally say, yes, it has it on the surface, it could look very good. We can say that we would start to produce our own EV chargers, then our five or six customers that we are producing as a service, would they still want to buy the service from us if they know that we will compete with them on the market? I would say that that's not so likely. So if we would do this, it has to be where we are not competing to any customer, in an industry we're not expect to compete in a with any customer. So for us, it has been a no, and we still don't see this as anything that we are considering at the moment.
That's where we stand.
I think that's a smart choice. Yes. Do you see any opportunity expanding your business offering going forward with that kind of previous question in mind as well?
I would say like this. The market is moving, and I would say that we have to be open for that. At the moment, I don't see that we are looking into it, but there could be interesting opportunities that we might pursue over time.
Mm.
But at the moment, we don't expect that.
No. Okay. Well, I think... Yes, please.
Just one more question. I think the most maybe asked question from investors right now in the EMS industry is, you know, you're saying that 2024 might be a, what you say? A little bit weaker year for the industry, and everyone is, or not everyone, but a lot of EMS companies are building out capacity. Do you see any risk that there will be an increased price competition going forward, to fill up the factories or the new... Yeah.
We have not seen it yet. I think that the, I mean, price pressure is always on the market. I would say that, I would, that would be not an accurate statement without saying that, but it was, it was on the table a year ago as well. You can say that between the years, the focus differs. In 2021 and 2022, focus was a lot on getting supply. 2023 is getting access to the right component prices when the component market goes down. That is much more important than to start to compete on the 1% or 2% on the margin, because the component side of the product is significantly high.
I should have said that in the start, but we are, out of our sales price, somewhere between 65%-67% of our sales is material. So if we can reduce material with 5%, that's worth 3.5%. If we can reduce our value add with 5%, it's what was it? 9% in direct labor, it corresponds to point 0.5%.
And how is that, those negotiations going with the material? I think you mentioned it also in your last CMD, that you're planning to go more direct to the producers of PCBs, for example. Is that progressing, or what's the status there?
We have a few of our colleagues here that will do that transition, so I will look at them. But no, I think that we have started, and this is a journey that will take time. Size as a company is really important because that gives you more negotiation power in those discussions. And while we grow, I think our ability to do this is higher, but I have a lot of faith in this. If we take one other question that you should have asked is, well, how do we see the trends on the material pricing going? You can say that standard components, we see a reduction on already, and that...
But then again, inventories are high, so there is a delaying effect of that. Semiconductors are still trying to keep their pricing up with quite small reduction. Some segments, some sub-segments are going down, but some are actually also going up still. So, it's the market has not adjusted to the lower demand as I see it.
Mm.
So that, yeah.
Thanks. I have a question from the web here. It is interesting question. If you have to invest your own money, if you would or could invest your money in one competitor, would you? First question, could and then-
I will admit to this in saying that I often use my mother in this, and she asked me for advice, and I have actually invested in two other EMSs for her. So I like the industry.
Yeah.
Then, of course, she had some shares in NOTE as well. Maybe a few more, but I like the sector. I think it's not only us. I think Kitron has done a good job, HANZA has done a good job. I think Incap did a very good job, until this hit them. Inission has recovered a lot. They're very clever guys. So I think the industry is doing a good job, and I think that everyone is improving. And I mean, when I... In the first phase I showed you, it was quite a lot of business was shorter. You were often used as a capacity ventilator for the OEMs that were producing on their own.
It was a lot more fight for every bid, so to say, and there's much more stability in the industry, and I think that is appreciated by the customers, and it's appreciated by the peers, and so. I think it's. I don't know if I see some friends that are from the industry here. So, that's my view. It's all our competitors or colleagues or whatever you call them are, I think, doing a good job. So I like the industry.
Yeah. Yeah, no, I think that's pretty much on, on time. Any more questions from the audience?
As always, we will have some, what do you call it? Some Glühwein is the best translation I came up with, but that might not be the proper one. But Swedish glögg then here-
Yeah
... and some things. So I will be around for quite some time, so take your time to-
Yeah. The people are joining in on the webcast can unfortunately not join for the glögg.
No, that's, that's the-
That's-
That's the choice you make-
Yeah
... when you don't show up.
Yeah.
As I say. No, yes, that was. But, I would say then, thanks a lot for coming. I hope that you gained value for spending these two hours with us, and, yeah, let's try to make a good ending of this year and a good 2024 and onwards. Thank you for listening.
Thank you. Thank you.