We welcome viewers to this live broadcast when NOTE has published their report for the first quarter of 2026. Standing beside me is the company's management, CEO Johannes Lind-Widestam and CFO Frida Frykstrand. Welcome.
Thank you.
Thank you.
You have a presentation that you will show us, so I'll simply hand over the word and return later to ask some questions.
Thank you very much, Mike. Welcome, everyone online. We have changed the format for this presentation, and we're now working with Investor Studios. Normally, I give you some flavor of how I think the quarter has developed. I think what is important is to know that we came in this quarter with quite some, how shall I say, issues in the output. Our Q4 came in slightly weaker. We had some issues in the supply chain to get the material out. Those problems were remaining into the first part of Q1. We expected the quarter to develop quite weak in the beginning and grow stronger, and that was supported by the order backlog that we talked about in the Q4 report. What we saw was that January came in a bit weaker than anticipated, February on track, and March came in quite strong.
The pace we are entering into Q2 is rather strong. That is something that we talk about when we talk about the gradual improvement for the company throughout the year. January was a bit weaker. That was why we did not reach the full numbers that we were anticipating, and we went out and made an update for the quarter on March 20, and we came in line with that or slightly above. We will talk about the earnings later on, but we also know that volume drives profitability, and that's something that we know as an issue. Frida will come back to that. When we go into the second quarter and the year ahead, we go in there with confidence. We have a good order backlog. We have a good momentum in the business.
We have the newly acquired STI, which I will come back to later on, that are performing in line with expectations. We have several ongoing positive customer dialogues that we are expecting and hoping that will give some momentum. We are also investing a little bit into our sales and marketing, and that is putting some limitation on the profitability on that part. We think that we are doing those investments to facilitate the growth that we are seeing ahead of us. I would say quarter came in fairly in line with expectations. Current pace is giving us confidence to stand here and say that we support the expectation for growth to come throughout the year.
We are also supported with the strong underlying trend of the growth in the security and the defense segment, and we will come back to more numbers around that when we go into the customer segments later on in the presentation. All in all, a fairly weak start of the quarter, gradually getting better, and with confidence we're looking into the quarters to come for the year and also for the years to come. I will hand over to Frida to go through some numbers later on. Some highlights for the quarter, of course, acquisition of STI. We call this a transformational acquisition on one of the markets that we are expecting to have the highest growth. There is a lot of underlying trends in the defense sector where the outlooks are really great. We are taking a bigger and bigger part of this sector.
We will see that the security and defense segment is constantly growing in size. STI is the leading provider of EMS equipment for the U.K. defense industry. Roughly 90%+ of the customers are in the defense sector that they serve. They have a strong customer base with several of Europe's leading defense companies. What we mean with that is that it's not only the local U.K. brands that we are representing. We have customers that are present on the U.K. market that are American, that are coming from other parts of Europe, and we also see some of the Swedish companies in this segment that are customers to STI. The customer base is really broad. That was one of the things that we really liked with STI and how they run the operations.
That acquisition is something that we will build on when it comes to how we address this market. We have also strengthened our sales team on the head office with a new director that will be monitoring this segment and work with all the customers and the politics and so on to ensure that we take the position that we think we have earned. Also what we see is that with the customer or with the order backlog that we see, we are expecting to come back into growth and profitability. To do that, we are strengthening our sales organization. We have a new Head of Sales and Marketing, Bahareh Madani. She joined us in early January. She comes from our board of directors, so she stepped down from the board and took a management position in the group.
She has strengthened the organization with a few feet on the ground, and we expect that increase to continue. We are also expecting to drive synergies between our existing NOTE factories and STI in the coming year. There is a lot of dependencies, if you call it that, between customers in the security and the defense segment. We think that the existing NOTE portfolio combined with the STI portfolio is going to give us a good platform for increased dialogues and business with the customers there. Order backlog is up 11% for the year. We also see that if we would add on the order backlog for more than the year, it's even higher. We see that also that the customers are placing orders on the longer horizon compared to last year.
This is also giving us comfort in that we will not only see that the growth will progressively come in this year, it will also remain when we come into 2027. We also see that despite these two acquisitions that we have done in the recent quarters, first Kasdon and now STI, we still see an equity ratio of roughly 35%. We think that is something that we are pleased in and that this also supports our strategy that we reinvest our earnings into future growth, not only with equipment and expanded footprint. We also see it in acquisitions. This supports our long-term strategy in a very good way that we are investing in our future growth and our future earnings. We will see the effects of that in the coming quarters and years when we see the full effect of the latest acquisition.
I'm also very pleased to say that our delivery performance that we were struggling with after the component crisis shortages, it remains strong. We still deliver in excess of 96% on-time delivery in full. That is a very strong message to our customers that this is an area that we still focus on, we still invest in, and we never lose momentum in this. Our quality has remained strong throughout this component crisis and are continuing to be in top class, measured in PPMs. We are very pleased to see that our investments and our efforts in our operational performance is still paying off. Now I hand over to you, Frida.
Thank you. As Johannes mentioned, we had expectations of a slow start to the year, and then a gradual improvement through the rest of the year. We gave an outlook to the market of sales between SEK 930 million-SEK 960 million. We came in slightly above that on SEK 962 million, which corresponds to organic growth of -6%. With this, we have achieved an operating margin of reported 8.7%. We gave an outlook of an interval between 8.5%-9%, but that was underlying. If we look at the underlying operating margin, we came in on 9.1%, so slightly above that. We know that growth brings profitability. When market uncertainty restricts our growth, we see that that also puts pressure on our operating margin. We expect when the gradual improvement throughout the year continues, we will see an increase in the operating margin.
As Johannes mentioned, we still see a strong financial situation. We have a good equity to assets ratio, and we see operational cash flow of +SEK 46 million. Also a bit lower than we have seen in the previous quarters. This is due to a slightly lower profitability and also, connected to that, also a slight buildup in working capital. We expect continued positive, strong operational cash flow in the coming quarters.
Esther.
If we look into our operating segments, we can see that Western Europe had a negative growth of -2%. Our biggest home market, Sweden, had a negative growth of 6%. In the U.K., we saw a negative growth of 21%. This is excluding acquisitions. We had expectations of a slow start to our, so to say, old U.K. factories. We see that our newly acquired businesses, Kasdon and STI, are coming in line with our expectations. If we look at the rest of the world, we see also a negative growth of -12%, with more differences between the countries where we saw growth in our Estonia plant, while in China, we saw a negative growth of . We still see high profitability in both segments, and we are +10% in Western Europe.
We are managing to increase the operating profit in our rest-of-the-world factories and coming in at 8.3%. The group as a total is coming in at 9.1% underlying, and this is, as Johannes mentioned, we have more central costs, primarily driven by more focused sales efforts.
Yeah. That is very important to remember that that is part of the initiatives that you take to ensure that we regain momentum and start to grow again and start to deliver on the order backlog that we see and also on all the opportunities that we're currently pursuing. Moving on to customer segments. This picture shows quite a few deviations. What we especially see is that the growth in security and defense is something that we have talked about. This growth in this quarter is primarily driven by acquisitions. We are negative in the organic. If we look at the order backlog, it supports a very strong growth in this segment going forward, starting in Q2. If we would include the acquisitions, we expect this segment to come in in the range of 25%-30% of our sales.
The assumption that we did when we acquired STI still remains. We also see that industrial, that we have struggled with in the last couple of years, is coming in fairly good. We also see that this segment will turn into organic growth in the second quarter. We see that the order intake in this segment is starting to come in in a good way. Communication, this is a segment that is negatively impacted, especially from the low output from China. The Swedish part of this segment is going well. We will see quite a sporadic picture here. Some customers will grow very well in this segment and some is currently looking at a reduction. If I look through the second quarter and throughout the year, I would say that communication will be on a flattish level.
MedTech, we see especially one big customer, our biggest customer. We had a 17% drop of that in the quarter. That was also forecasted. We expect the MedTech segment to be in the pace that we currently see or slightly higher than that going forward. That will mean that we will end the year with a negative growth in the MedTech segment as we see it. GreenTech, very sporadic. The reduction here is basically due to the slow start of the year. We had some issues on the supply chain to get some volumes out on one of the customers, and that has affected the full quarter. All in all, I would say that the growth that we see for this year will be primarily driven by organic growth in the security and the defense segment, and also by organic growth in the industrial segment.
The other segments will be flat or slightly down throughout the year. That is what we see, and if we look at the Industrial segment, I think that is very important that we start to see growth in it, because it's our biggest, and the biggest customers that we have is in this segment, and we see optimistic outlook from those customers. All in all, we see a slightly sporadic picture. We will see that the dependency of the group on the Industrial customers and the Security and Defense will become stronger over the year. That is how the customer outlook is looking. Pleased to see that Industrial is turning its number into flat in this quarter and growth for the next quarter and the quarters to come. Going into my last slide. Just a summary, we see the acquisition of STI as transformational.
What we mean with that is that we take a significantly bigger part of the consolidation in the security and the defense sector. It's very important for the customers that we, as a group, have significant strength. We have the ability to support their expected growth through investments, through competence investments, and through compliance with their fairly tough demands, and that we also can meet them on a strategic level that they expect. We think this will build on what we have done in the last couple of years in a very good way. Our view of the full 2026 remains that we expect a progressive improvement throughout the year. We expect STI to add on the progressive improvement with SEK 550 million-SEK 600 million for the remainder of the year. We expect that our underlying operating margin will be back into the range of 9.5%-10.5%.
That is what we see. We go into the second half with quite strong momentum and high confidence for the quarters to come. Now I will leave
Thank you very much, Johannes, and thank you, Frida, as well. For this Q&A, we are joined by your analysts, and while they put on their camera as well as put on their microphones, I will ask some questions while they also raise their hands to ask some questions. You expected a slow start here in Q1. Now that it's behind us, you landed, seeing into your sales, just above your initial guidance that you had the 20th of March. Do you still consider Q1 to be a slow start to 2026?
Yes. For some reasons, we had some issues to get the products out. We talked about test problems for the security and defense, and that remained into especially January. We gradually improved in February, and in March we're up to full speed. These problems are behind us.
Has this slow start, is that behind us now? Or is it continuing to Q2?
Yes. We can say that March, even if we would exclude STI, it's one of the strongest month in the last couple of years when it comes to sales. Also underlying profitability was really good. With the combined group with STI and Kasdon, we will see good sales. We will see Q2 will by far be our best quarter we have presented. That's our expectation, and the quarters to come after that will build on that position.
We turn now to the analyst, and it is Thomas Blikstad who will begin from Pareto Securities. Welcome.
Thank you. Just a couple of questions from my side. I think we'll just start with some backlog questions here. You have had two quarters now with very strong organic backlog growth, I think it was 11% in Q4, and now another quarter with 11%. Also with the capacity constraints in defense industry in Q4 and Q1. I was just wondering if you can break down some of the backlog in terms of customer segments and also in terms of the lead times you're expecting here. You say that you have good production here in Q2, but can we expect a catch-up effect here in the second half of 2026?
I would say yes to that. If we look at the security and defense segment, we don't report our order backlog in that way. If I look at, for example, second quarter, we see that the order backlog supports an organic growth in excess of 20%, in excess of that. Then we see that acquired growth will come on top of that. In the industrial field, we also see that that supports an organic growth, but we have not summarized the number as a total on that.
Is the majority of the current order backlog set for deliveries in 2026 or is it 50/50, 2027 and 2026?
You can say that the order backlog covers, so to say, 3-6 months if you look at it, and then it gradually reduces depending on which segments. If I look at the full order backlog, we didn't report that, but that is up by 16%, not currency adjusted, and maybe up to 18-20 if we would currency adjust it. We also see that order backlog is growing in length, and the majority of that is coming from the security and defense segment of the orders for next year.
Okay, great. Thank you. Just on a bit of a wider question here, with the STI acquisition, a lot of new interesting customers that I guess you haven't been exposed to before. I was wondering, what specific sales synergies do you expect to do here, and what's your plan to ramp up production in the sites?
If we talk about the sales synergies, I think this is one of the segments where customers are working a lot together. Companies are selling to each other. When you build, for example, a Gripen plane, they are buying products from our customers in STI and so on. There is a lot of dependencies between the different companies. They also support what we call local production, which means that our footprint with manufacturing in several other countries outside U.K. will add on possibilities for the STI customers to grow their sales in other countries. On top of that, I have had meetings with a few of the customers, and I have an extensive travel plan for U.K. in the coming quarter to visit the majority of our top 10 customers on this list to see how we can support them in a better way.
The dialogues have so far been really optimistic and positive.
That's great to hear. You think that you could perhaps take some larger share of wallets from these customers, bring it over to your production sites in Sweden, Nordics or other sites as well?
That is our expectation, and that is what we're working on, yes. I would also add on the order backlog, just to avoid any confusion, we only talk about the order backlog for what we call the old NOTE. We don't include the two latest acquisitions in the order backlog.
Thank you. Yes. That's very clear.
Thank you.
Thank you.
Thank you very much, Thomas. We'll now walk over to Anton Ingves, who is the analyst at Nordea.
Hi, and good morning. If you could perhaps give a bit more color on the supply chain situation here, given the recent constraints in the world. Have you seen any effect from this in March here or maybe going forward?
I think the short and easy answer is no, we don't see constraints yet on this. If you look at this from a longer horizon or perspective, there is discussions about how the production of some different gas qualities can affect the capacity of the semiconductor industry. We have not seen any effects of that. If any, I would say that the expectation from my end would be that there will be price pressure on the upper side from the supplier side. The market is fairly open. There's very few components where we see restrictions. We see capacity constraints on some parts of memories, but that's very limited to those products so far. Besides that, I don't see any constraints of that. Everyone talked about freight problems, especially air freight, when the Middle East was closing some of the world's biggest hubs.
We have not seen that this has affected us. The air freight companies were very good and rescheduled their routes so that did not affect the supply. Price-wise, yes, it went up on cost. That is something. We see cost increases by the Middle East or conflicts, but otherwise, we don't see that. When we talk about supply chain problems in our end, it was internal problems related to test and the change of test platforms. It was just dialing in that part, and that affected the second half of Q4 and the first half of Q1. Now those problems are resolved. It's not external issues, it was internal issues that affected our output in the fourth and the first quarter.
Okay, perfect. Very clear. About the testing that you alluded to here, is there any other new testing periods coming up in the Torsby site during the coming years here?
Not that we foresee. We didn't foresee this either, to be honest. No, we think it's a lot about output now. Get the orders out. That is what we focus on. We also did, as you know, we extended the factory. We reorganized all the equipment and so on in the first quarter. That has some limiting effects of the output. Now the factory is, how should I say, refurbished or replanned. Now everything is set. We are ready for growth, and we will facilitate the volumes that we see in the second quarter and the quarters and years to come. We are ready.
Perfect. Very clear. One last question, if I may here. On the working capital here in the quarter, negative effect in the cash flow, despite the decline here in organic sales. How should one think about this effect here going forward, especially when the defense deliveries ramping up here? Is it fair to assume higher working capital needs here the coming years?
When we start to grow, there will be a higher working capital need. I don't see that we will have a disproportionate increase. The negative effect we saw, we had higher AR when we left the Q1 than the Q4. That comes a lot with that the sales came in gradually, so March was significantly stronger than January. That has an effect on our AR. We built the AR just because the timing of the sales in the quarter. We don't expect that timing to be affecting the second quarter. I think our expectation of having a stable net working capital demand is where we see. We actually see that we should be able to bring out some of the inventories throughout the year. We expect the cash flow to be positive compared to our reported earnings after tax.
We have earlier said that we expect the cash flow to be maybe SEK 100 million above the profits that we will report, and we still remain on that. Q1 was a slight hiccup, and that came out with that we didn't get the volumes out that we expected. We don't see this as a trend shift. We see this as a delay. To be clear on that.
Okay, perfect.
Thank you very much, Anton Ingves. We also have Fredrik von Schantz, who is the analyst at Handelsbanken. He has sent some questions in the chat. He asked the following: Could you comment on the Kasdon performance during the quarter?
Yes. Kasdon sales came in relatively flattish to last year, and the profitability came into our expectations and how we have communicated in the past. We don't comment on individual groups' profitability in this, but they came in line with what we expect.
There's also a viewer, Johan, who asked the question: You're guiding for a margin in line with previous year, even though Kasdon had much higher margins last year. Are Kasdon less profitable for 2026, or are the margin pressure coming from other segments?
No. First, it's very easy. No, they're doing a very strong year. Secondly, we are guiding for this due to that we are investing in some buildup of sales and marketing competencies and some other head office software, also doing a quite extensive IT project that will have some aspect of that. I would also say that if we meet the higher ends of what we expect of the sales, we are also seeing that that will positively impact the margins.
Back to Fredrik von Schantz's questions then. STI, how much did it grow organically during the quarter?
I actually don't have that number. They are expecting organic growth for the full year of about 20% compared to 2025.
More questions from the viewers. Could you walk us through how you prioritize capital allocation between organic reinvestments, M&A, balance sheet strengthening, and shareholder returns? What return thresholds you require?
Oh. That was several questions into one. I will start, Frida, and you can correct me when I'm out of line. I think that both STI and Castor were investments for us to strengthen especially our security and defense exposure. Those were two profitable and strong performing companies. We have put some pressure, if you put it like that, on our balance sheet. We have been running NOTE with very low debt and so on, and now we have increased the debt. We know that we're very good at generating cash on our profitability, so we are expecting to gradually decline our debt throughout the year. We're not stopping our investments in capacity growth for the old NOTE, if I put it like that. Those investments will continue.
We did not propose dividend for this year due to the investments that we have done in the acquired businesses. I think I leave it at that.
We have a new question here from Fredrik von Schantz. I will also encourage analysts that if you have any final questions to raise your hands and we'll address them. Fredrik asks, "What is your view on your competitive landscape? Has competition increased or decreased in later years?
I think we're active in a strong market. There's several good competitors that are performing well, and that is something that we are seeing. We see that on the bigger deals, there are good competition. I don't see that anyone is cutting down to what I call they're buying customer accounts, but there is healthy competition on this end then. If any, I think that the years with the component crisis were a bit unhealthy with quite low competition. You had what you had, and you built what you had because no one wanted to move their supply chain because that would end up in problems. Today, I think the competition is healthy and to win, you need to sharpen your pen and be aggressive, but you will still earn good money also on the new accounts.
I think it's a healthy competition where you have to be strong to win the customers.
More analysts are excited to ask some questions, so we'll turn our attention back to Thomas Blikstad from Pareto.
Thank you. I just had a final one on Waystream, which you have communicated for some time in 2025. You got some good order momentum here in the first part of 2026. Do you have any sort of more color on the progression there?
Waystream is listed, so I will not go so much into details, but we expect a very healthy growth on Waystream for this year. We had healthy growth in Q1, and we expect that to continue and also gain momentum throughout the year. Their product is a bit complicated. There's a lot of semiconductors and long lead time items, and that is affecting the ramp-up a little bit, but they're one of the ones with a healthy order backlog for us. We are really appreciating the cooperation we have with them.
Great to hear. Thank you.
Anton Ingves from Nordea, did you also have a final question in mind?
Yes, thank you. Just a bit here again on STI, sort of the timing effects here during the year of these expected SEK 600 million. Is it quite back end heavy, or is it fairly equal between the coming quarters here?
I would say that STI has a history of back-end loaded. We're not seeing a straight line. We're seeing that Q2 will be. Okay, let's do some mathematics. Say that we are expecting in the best guess that we do for Q2 to Q4, we do 30%, 30%, and 40% to give you some indication. I took this straight out of my head and without checking the facts, but that is the picture that they have provided me with in rough numbers.
Perfect. Thanks.
Thank you very much, Anton Ingves. With that, I wish to thank the analysts here for joining us as well as the viewers for joining us. Johannes and Frida, thank you very much for being here presenting and answering our questions.
Thank you very much.