Good morning and very welcome to Note second quarter presentation. As always when we have the current president in US, we see some disturbances during the weekend. How do we cope with those changes and so on. We will only touch upon that topic and focus more on Note 's performance. Let's start with this. When we presented Q1 we were quite, how should I say, nervous about how the global factors would affect us. We were cautious in our guidance. We saw some slowdowns. We were seeing and expecting that the turbulence on the financial market would be bigger than it actually became. We were quite pessimistic. We were expecting customers to move out their orders more in time than we have seen.
If I look at this quarter, it came in as we see it, fairly much in line with what we said, SEK 980 million in sales with roughly SEK 35 million in negative effect coming from currency. Sales were as we expected, our profitability 9.6% underlying. We were at 10% in the first quarter. We know that are doing this. We see that there are some, what do you call it, some VIP build up that were stronger in the first quarter. That means that we produced some products, we stored them over the Q1 end and then we sold them out in second quarter and that has some effect. I would say the first and second quarter is even if we reported 10% in Q1 and 9.6% in this, it's two very similar quarters. It's more of a movement between those two factors.
That is things you have in all quarters that you have some effects of this. Earnings per share SEK 2.65 million up with 7% if I made my calculations correct from last year. Cash flow, I will come back to that on the next slide. We think that is very important that we continue to generate good cash flows. Net debt SEK 117 million was a very, very strong number. We were down to neutral after Q1, then we did the dividend and now we're back to some marginal debt as we see it. Going into numbers, what we can see is that we are continuing to invest for a growing future. I get some questions about that. How can we be so optimistic when we are reporting flat sales or even reduced sales say in the last three, four quarters.
We still believe and we still see that our customers' forecast and what they are telling us is that they are expecting growth. We know that the first half year is affected by some negative stock reductions, and we are expecting that maybe in the fourth quarter going into 2026, we will start to see stock build up again. That will of course come as a positive effect on our numbers. Our expectations from Q1 with the negative effects have not materialized. We are also seeing that the outlook for the second half of the year remains strong. We adjusted that a little bit on the top end. That is more of an adjustment to the lower or the stronger Swedish currency, where we expect that will have an effect. The stronger currency will have an effect of roughly SEK 100 million in lower sales for the year.
In this quarter, it was SEK 35 million. What we see also important is that we see a very strong financial situation. We are continuing to report an equity that is roughly 50%, 49% in this quarter, and our cash position is SEK 634 million. That is higher than we reported in the fourth quarter in 2024. The dividend that we gave out, we earned that back with some margin in the first two quarters. I think that is a big, big strength in our current operations, that not only are we keeping our margins high, we're also generating a cash flow that is significantly stronger than our earnings. As I said in Q1, we still expect that we have maybe SEK 100 million more to go until we are neutral, if I call it like that.
We can expect the cash flows to continue to be stronger than our profit after tax. I think that is also important to know that some of the questions I got after Q1 and after we announced the big dividend, are we stepping out of acquisitions? I would say that is quite the opposite. We are continuing to generate cash, and we are expecting to have a cash position that during the year will become even stronger than it was in Q1. This is the second best cash position we have had forever in Note 's history. Our room to maneuver is significant, and there are quite a few discussions ongoing now on the M&A area. There is nothing that I can report on at this point, but how shall I say, the landscape has improved significantly during this year.
I also said last year that there were some discussions of how to view 2024. That was a really weak year. Today, that is something that is part of the valuation. I see much better possibilities to agree on price and so on going forward. This is an area where myself and our CFO Frida is putting a lot of energy into to ensure that we do good acquisitions and that we close them. We are, as I said before, expecting to have at least one acquisition per year. In 2024, we didn't do any one. We are one year behind, if I put it like that. This is very important, also something that I'm very proud of. Our delivery performance is now back on track.
We are showing numbers that are back to where we were in 2020 and 2021 before the component crisis came in and we went down a bit on performance. It has taken a long time, it is more tricky than it sounds to keep and deliver performance above 95%. That's very pleasing to see and we know that when we are hitting that number we have very few discussions with customers where we're failing to deliver. This is a focus area for me, it's a focus area for the group and it's a focus area for everyone in all our factories to ensure that our customers get the products that they are ordering on time and in full. That's very pleasing. Our quality remains strong. We are still delivering a quality that I think is world class.
When I look at what the demands are from the automotive industry, we are exceeding those requirements and those are the toughest. They have the toughest demands in the market. Really pleasing to see. Order backlog has been a topic that we have talked a lot about and we're seeing that our backlog increased with 6% compared to first quarter. I think that is a better indicator compared to where we were a year ago. Order backlog one year ago, we are down 1%. If I look at where we are heading, we are seeing that the order backlog currently is increasing and that is really pleasing to see. I said that in my comments after the first quarter that this was the number that I was hoping to get up to and this reflects a bit of how our customers is viewing us at the moment.
Really pleasing to see. Moving on with our bullets. I think operating profit is something that we're very proud of and that we're pleased to see. We are delivering 9.6% underlying and we are at 9.8% year- to- date. As I said before, I think that that number is more reflecting how we are. We are performing. We will have some swings up and down, but as long as we remain in our guidance, I think that is a very strong message that we're continuing to deliver good profitability even though we are not growing. This is really pleasing to see. I think also that we are, one thing is to deliver on the EBIT level. We are also seeing that our financial costs are going down. We see that our profit after taxes is improving quite significantly and our profit per share went up with a very strong number.
I think this is also something that we are proud of and that is something that we are focusing on, not only to have a good EBIT margin, we also focus on delivering good result after tax. I think that is something that will pay off over time because that is the cash we can use for all our investments and so on. As I said, our cash flow is SEK 260 million year- to- date operational, SEK 214 million after investments. That is a number that is higher than what we paid out in dividends. That was my expectation, just to be clear, that we were expecting to generate cash flows that were really strong in the first half of this year. That was part of the decision to make this quite substantial dividend payout. Our financial situation remains really strong.
We are expecting to close at least one acquisition this year if we can agree on the pricing. That is where we stand. Moving on, looking at our segments, Western Europe remains where we are expecting 10.1% this year. What is also good to see is that the rest of the world is improving. 8% at underlying EBIT level is really strong. I think we have been higher than this one year before, but this is also getting to a number that we are expecting and where we want to be. Now we see that what is lacking is our growth and we can see that when we look at our countries bit, we see growth in basically all countries. We have a negative number in Finland that is after currency. I think they were growing 4% or 5% underlying before we did in euro and then in Czech.
That means that we are declining a bit. The same goes for China where we're also reporting negative growth, but it's positive growth in local currency. U.K. is where we are struggling and - 34% is a really high number. As I said before, we see that our largest customer in the U.K. has zeroed out the first three quarters of this year. We will have one more quarter with low or no sales to that customer. After that, we are starting up the production again. That customer stands for maybe 12%- 15% of the U.K. sales, so it's significant. What we should take with us here is that after the reduction that we saw in 2024, we have adjusted our cost base in especially the rest of the world to better meet our current run rate.
That is reflecting in the numbers where we see that I think 8% in what you can call our low cost countries, that is very strong. We know that the price pressure is higher on those entities. If we can maintain on 8%, I'm really pleased in this region. Moving on to our customer segments, I was a bit afraid that the growth in GreenTech that we saw in the first quarter would end, but now we see 15%. We also see that the order backlog in the GreenTech area is improving. I'm expecting that the segment will continue to show positive numbers in the same range as we are seeing now. 15%- 20% is my expectation. The second segment that we see strong growth in is Security & Defence 18% year- to- date. . You should know that last year we had 100% growth in this segment.
18% over a year with 100%, that is really strong. I think that would equal to maybe 60% CAGR in last year and this year combined. Growth with some customers is going in steps, if you put it like that. Some quarters or some years is really strong and then they flat out and then they can continue to grow. Especially in Defence, for those that work in it, it's a lot related to which orders you have in the quarter. Some orders are really high and then you can have one or two quarters that are a bit slower. At the moment we are expecting this segment to continue to grow, but it will be a bit. It will not be linear, it will be, how shall I say, changing between the quarters. If I look at the other segments, we see c ommunication - 7%.
This is a quarter where, or this is a segment that we see quite low activity in. I am expecting that this segment will start to be growing already from Q3. If that means that we year- to- date. after Q3 will be positive, it's hard to say, but quarter-over-quarter I would expect communication to grow. For those of you that remember, this was one of the segments that were really weak in the third quarter last year and that was, so to say, one of the reasons why we did not meet our guidance for Q3, that the communication came in really weak. Therefore we will be meeting quite low quarter in the third and fourth quarter in this area. MedTech fairly flat.
We are expecting that to continue to be a few percentage down for the year, but the run rate we have is roughly the run rate we are expecting. Then we have our large industrial segment and here we have some customers that are still performing quite low. We see that the order intake and that their forecasts are getting up to higher pace. We also expect the industrial to start to grow year-over-year. When we look quarter-over-quarter when to Q3 and Q4. If I look at this, GreenTech to remain where we're at quarter-over-quarter, roughly the same. Security & Defence, some growth. Industrial, we will start to come back to neutral or a few % up, and communication, especially in Q3, we are expecting that to grow, and then MedTech will remain where it is. GreenTech, Security & Defence, very positive.
The rest flattish if you put it like that for the rest of the year, with some ups and downs moving on. I think that what is important when we look at our business is that it's, if you look at this trend we started, if you take 2020 as a starting year, we doubled the sales in two years from 2020- 2022, then we continued to grow in 2023, and then we have had the reduction in 2024, and now we're guiding for marginal growth, 0%- 5% up for the full year. We should also know that the sales that we are expecting in local currency will be 8%, 9% when we summarize this.
The reason why we're not where we are guiding down is mainly due to the Swedish currency being stronger, and that means that the sales we do in other currencies will affect us quite significantly. We are expecting to keep our margin in the 9.5%- 10.5%. If I would guess, I would say that Q3 will be lower and Q4 will be higher. If both of those will be within this estimate or if Q3 will be slightly below and Q4 slightly above. I think we did 10.7% in Q4 last year, and Q4 is naturally our strongest quarter when it comes to profitability. We are expecting the second half to be fairly aligned with the first half in margin, but we are expecting to start to see growth in the second half.
The guidance that we put in front there is roughly 5%- 10% positive growth for the second half of this year. Even if we reduce the upper end of the estimate, we're still expecting quite good growth in the second half. Our order backlog is indicating 6%. That would mean that we have orders to support this. If I look forward what will happen into 2026, we talked about this one customer in the U.K. that will come back. That will mean a few percent. We are also seeing that especially the industrial segment is starting to show some positive signals. We are expecting Security & Defence to continue to grow in the 20%+ range year-over-year, and we are also expecting that GreenTech will show quite good growth in the coming year.
We are seeing quite a few positive signals when we move into the second half of this year and in 2026, but we will come back to that later on. With this said, I can comment a bit on acquisitions. I think that is one area where we have been seeing that we are lagging. We talked a lot about it last year, that many of the sellers were expecting that we would pay or valuate the companies on 2022 and 2023, that was boosted with the inventory buildup, and that we should not look at 2024. Currently, we're seeing that the expectations of the valuation are coming down and that 2024 is naturally a part of the valuation. That means that we have much easier to meet our sellers on price because the market is quite, how shall I say, it's quite—the expectations are quite fair.
We have a few very constructive dialogues, and we are expecting to close one or two of those during this year. Hopefully, we will close more than one, but as you know, that is quite a lot of work to do. We are quite active in this area at the moment, which is very pleasing. With that said, I will hand over to the audience for some Q&As. This time, since we're not having this with an audience, we will open the floor for questions from telephone questions or voice questions from the web.
If you wish to ask a question, please dial on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial six on your telephone keypad. The next question comes from Thomas Blickstadt from Pareto Securities. Please go ahead.
Good morning, Johannes. Thomas here from Pareto. If we look at the guidance for 2025, we see Q3 is facing much easier comps, and you also have the new Torsby plants being operational from Q4 and onwards. The first question is if you could give some color on the expected contribution from the new capacity in Q4, and also what sort of volumes you need in order to sustain the margin.
I think that if we hit the lower end of our guidance, we will be around the midpoint of the guidance. That is what we expect from a profitability point of view. If we hit the higher end of the guidance, we are expecting to have double- digit OP for the year. Roughly that is how we see upon it. Second question about the capacity in Torsby, we are not running out of capacity as of now in Torsby. That will not have any higher sales increase impact. That is more of an adjustment of capacity for the future growth that we are seeing. Was that clear, Thomas?
Yes, absolutely. There's one further question, if you could. What sort of dynamics do you anticipate between the next two quarters, considering the easier comps in Q3?
I would say that we are expecting both quarters to be fairly aligned in growth when it comes to percentage growth. We know that also this year. It's not what you call it. It's not these kind of years where you have the full throttle on, so to say. We are having a two to three weeks closure of the Swedish factories during the summer. That will have a negative effect on the sales in July. That is a smarter way to do it than to run factories with lower capacity over a longer period. I would expect that both quarters would come in in a % growth in fairly the same number. That would mean that we are in the 5%- 10% growth compared to what last year.
Thank you.
As a reminder, if you wish to ask a question, please dial the pound key five on your telephone keypad.
I will continue with some questions that I got from the web. First, I have one from K arl, large order announced in Security & Defence. Can you tell us a bit more about the win? Is it towards defence more than security? The answer is yes, it's more towards defence. Very easy question to answer. Second question from Alexander. Inventory turn rate has improved during the last quarter. Do you see further improvement and how do you expect it to develop if the market turns up? I mean, we have stated to the market that we are expecting four to five in inventory turnover. We are roughly running at four at the moment. We are, over time, we think that this will be more like five rather than four. So there is still maybe SEK 100 million left of inventory to go until we are where we want to be.
We are expecting to be in that range if we grow or if we are flat or whatever. I mean, inventory turnover, if the market conditions are aligned with the sales, which they are today on the component market, then we should be in this range. It doesn't really matter if we grow or not because what we order is coming within, say, 8-12 weeks, even on the longer lead time components. That means that we should be able to balance our inventory towards our sales. The reason why we had this massive inventory buildup is that the component industry started to go from 10- 12 weeks lead time on semiconductors up to maybe 50- 70 weeks. It was very hard for us to keep service level up and at the same time keep the inventories balanced.
We don't see that there is an, how should I say, the imbalance between demand and supply at the moment on the component market. We are expecting to be in this range also going forward. That is why I say that we have maybe SEK 100 million more in overstock or in expected over cash flow to come in the second half of this year. That will come in. It's never linear, unfortunately, so it will come when it comes, so to say. I have a question from Karl. What is the driver behind the strong growth in the rest of the world and a particular customer or segment of regions? I would say that the rest of the world had a really negative growth last year and it's more of a recovery back to normal level.
We can see that especially Estonia, we have our customer base there is to quite the biggest and quite large industrial companies and they overstocked a bit more than the rest of our customers did in 2023. I mean 2024 was quite weak, especially in Estonia, and we're seeing that Estonia is coming back to good growth numbers. Also, China, we saw a very negative development in 2024, and that is now recovering to a slightly higher level. We are still quite far to go in China until we are back to where we want to be there. Those are the main reasons for it. We grow nicely in Bulgaria. It's still a small site. We are seeing good order intake, we're seeing that we grow with our existing customers, and we have good dialogues in that factory to also grow that with new business.
The rest of the world has a strong position to support in the growth journey that we're looking at. Hope that answers your question, Karl. We have one from Antti: what kind of multiple EV/EBIT are you willing to pay for M&A targets? Currently, we are in dialogue with a few targets, so I will not give you more statement, but you can say that historically we have seen that normal numbers, if I read the reports from the M&A banks and advisors, has been if the business is flattish, maybe EBITDA level or EBIT levels of seven, and then if they show good growth, we have seen numbers up to maybe 9- 10 on EBIT levels.
I would expect that some of the targets will go higher than this, especially if they are heavily dependent on defense, because the multiples there, we are seeing that those are driven up. I will not be more clear on this because that can affect some of the dialogues we are in. I would say that it has come up maybe one or two turns. That is my expectation if you look two, three years ago. Next from Tommy: possible acquisitions. What geographical areas are you looking into? Also, the fact that U.K. has been challenging, how do you look upon challenge when entering new geographical markets? Very good question. We are looking at the acquisitions, especially within Europe. I can say that we're European companies with the majority of the business in Europe.
Some might have business outside of Europe, but where they have the current head offices is in Europe. Then we have one from Karl. There have been quite a few acquisitions made in the market recently. Scarfield made a quite sizable one yesterday. Did you look at it also? The acquisition has close to 40% from defense, but the price tag was a bit high, 10x the area. Do you think Note could pay similar multiples if the exposure is very good? Yeah, maybe we will see. Once again, I will not comment so much on pricing because that will be. We will get back to that when we have closed something that is a much better way, I think. We have one more from Ante. What is driving price pressure in the rest of the world and how do you aim to offset it?
I think price pressure is something that we're always facing and the rest of the world, we are seeing that we have lower material margin. That means that the material stands for a higher portion of the sales, and that means that we have to be more efficient in how we produce to maintain our margins that we expect. As always, we are investing in automation, we are investing in better equipment, and we are looking into ways of how we can continue to drive cost out of our production process. I think that is our measures, how we are, how should I say, addressing the price pressure. We are expecting to maintain our margins. We are expecting to meet this competition with a stronger cost base. That is how we try to handle that. Next question from Ante. What is driving price pressure in rest? I already answered that.
We have Simon, what is your preferred acquisition size in terms of sales? I would say that we are, our expectation is that they should be EUR + 20 million, EUR +25 million. We do not have a higher and upper limit of that, but we want them to be sizable, that they make a difference. We did the one in Bulgaria, it was smaller, but here we are expecting to add a lot of organic growth to that acquisition. It was more that we wanted the footprint in the lowest cost base in Europe, and so that was a slightly different strategy behind that acquisition. Otherwise, I think they should be sizable. Otherwise, it's more work than gains, if you put it like that. We have one more from Karl. A lot of talk about Plaid. They are growing a lot and are insourcing more and more.
Can you talk about how this impacts you? I would say that we have a very good dialogue with Plaid and we are acting jointly with them and we are doing whatever we can to support them in the best way we can. We're very happy with the cooperation with them. For me, they are very open in how they think and we are open with how we want to pursue this business. Very, very pleased with the relation with them. We have one more from Alexander. Revenue per employee is quite a bit lower in rest of the world compared to Western Europe. Why is that? Is it the volume question or less automation in those factories? I think that the nature of business that you are putting in the lower cost base is that there are higher on work content.
If there's pure PCB or PCB production, then you can as well do it in the higher cost countries. The nature of the business is that the material content is lower, the work content is higher. Therefore, it requires more people for the same sales. That is, in my opinion, more related to the business that we do and the products that we produce in these regions. That is why the sales per employee is lower. We are, however, trying to automate also the activities in the rest of the world as well as we do it in Western Europe, because that is how we want to grow our margins over time and also become more compatible when we look at our peers. That is natural. It's not something that we think is bad, but we want to improve also the sales per employee in the rest of the world.
That is also part of our strategy. I think that is the last question I have got in.
The next question comes from Anders Ekblom from Nordea. Please go ahead.
Yeah, good morning. Thank you for taking my questions. Starting off on the sales guidance for 2025, as you mentioned, you lowered this mainly due to FX. Is there anything in particular or any other dynamic we should take into consideration to why you lowered this?
No, I think the second half is looking quite as we were expecting in the first. After the first quarter, FX has a natural effect of it. That is important. We also, this also shows that we are expecting a growth of 5%- 10% in the second half, which is more in line with where we are seeing that the sales are heading at the moment. It's nothing really more than that.
Okay. I was thinking that kind of the FX impact should have been seen then as well, and that if some sort of sequential deterioration in any type of customer group that preceded this.
I would say that in the first quarter we had our FX effects was flat, so that was neutral. We don't really, how should I say, we don't speculate in how the currency will go when we guide. We are simply, how shall I say, multiplying our order backlog in local currency towards the Swedish currency at the end of the quarter, and then that will have an effect.
Okay, makes sense, makes sense. Also, on the backlog development, good to see growth here, but I was wondering if, partly, there has been any sort of lead time consideration that might have impacted this, given that, you know, if lead times have shortened or such. Is that something that affected the numbers?
Yes, for sure. I mean, if you go back, say one year ago, I think the lead times on customer order were significantly longer. If you go back two years, it was extraordinarily long. We tried to be open and show the market on how we were looking at this. Now we can say that we have customers that are forecasting and then are calling off at, say, less than five workdays. We have, of course, some flexibility barriers, if you put it like that, on how they can fluctuate, how shall I say, week over week or month over a month. That is how our industry is normally looking. The order length is now, how should I say, harmonized to how it was before the component crisis.
Even better, I guess, to be able to show black numbers on order backlog in that case. Also, this has been a theme for quite some time, not to labor the point, but in terms of tariff-induced buying or any sort of tariff effects, is that something that has perhaps affected the numbers as well?
Yeah, I think when we presented Q1, there was, how should I say, even more discussions about how the tariffs would affect us. We were reporting a week, what do you call it, Liberation Day. There was a lot of uncertainties. I can say that the second quarter has, how should I say, it has not driven more uncertainty. It has been more that, okay, this is the new reality. Let's face it and do the best out of it. We are seeing some movements within our production between different factories within Note , but the movement is really low. We are preparing ourselves for if there are big, how should I say, deltas between how the currencies will be in different markets.
So far I think the customers are, how should I say, they are taking this with some, yeah, they want to wait and see how this is sorting itself out, if you put it like that. We might get into bigger changes. We're not there yet. I think the biggest problem that we are seeing is that the recovery of the market is delayed, is becoming delayed by the uncertainties of the tariffs and the trade barriers. Does that make sense?
Yeah, makes sense. Thank you for the flavor. Does that to some extent explain the dichotomy between kind of the performance in Western Europe and rest of world, which was quite pronounced in the quarter, or is that not something that kind of played into that directly?
I think that if you would put it in a good context, Western Europe is going fairly well if we exclude the U.K. U.K. is what is preventing Western Europe to grow. That is something that we are dealing with and trying to change, of course. We are just one. Sorry, please.
We are expecting that market to recover. It is more of a very slow period at the moment, and we're seeing that the pace we're looking at in the second half is quarter-over-quarter. If you put it like that, where we're standing second quarter, we're expecting that to start to improve. That is also part of our guidance, of course.
Yeah. Just one final question on seeing from before, a question you got before. It was a very good question with, kind of, you know, the GreenTech market, which grew some 25% year-over-year, based on the numbers you provided. I mean, with regards to kind of insourcing and such, I would appreciate if you could maybe give a bit more clarity on that answer. Kind of what you're seeing in terms of the risk of that, if it's most pronounced in that market, and what you think you'll have to do in terms of pricing in order to negate that effect as much as possible.
I think that naturally the GreenTech area is where we are not expecting any competition from how should our product owners own factories because they're normally not building factories in that. There's one exception that is Plaid, we have talked about that and I don't want to elaborate more on that deal. Otherwise, we don't see any reason for insourcing in this area at all. I don't see any reason for insourcing at all, to be frank. If you look at the trend of insourcing versus outsourcing and if we look at that in, say, a 25 year perspective, the outsourced part has been growing every year and we don't see any reason for why that would change. The investments that you have to make to build up electronic board assembly factories is significant and there's very few companies that are willing to take that and do that.
I think the business case for outsourcing is becoming stronger all the time, as I see it. I don't expect this to be, I don't expect anyone to insource to be fair.
I agree, and it was maybe Plaid that I was referring to, so to speak. I appreciate that you can't say too much about that. Thank you very much in any case for taking my questions and have a good day.
Yep, you too. Thank you very much. Any other questions from the floor?
There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.
Thank you. Quite a few questions. I like that. Please call in and send questions. I think that is very, very important when you make a presentation like this, you think that you know what the audience want to hear. We are always willing to take any questions also on this call or if you have any specific questions, please contact Frida or myself and we will try to answer them as timely as we can. Final remarks. We have seen maybe five quarters where we have seen sales that are lower than last year. This quarter we are on par with last year if we exclude FX effects. Now we're moving into where we are expecting to start to see growth. Order backlog is higher. Our expectation for the coming quarter is growth and we're also building for the future. I think that is very important.
If I look at what our customers are expecting to buy from us one or two years away from today, it's significant growth. There is a market hesitation with placing orders. There is a hesitation of building inventory from our customer sides. That will change and we are building Note as stronger to meet those demands. I also want to thank all our customers for the faith that they have in us and we are very pleased with all the cooperations and all the dialogues we have there. With that, I will close this call and thank you everyone for calling in during the summer to listen to us. Thank you very much.