Note AB (LTS:0GSS) Q2 2025 Earnings Call Highlights: Strong Growth in Key Segments Amid Currency Challenges

• Green Tech: 15% growth.
• Security and Defense: 18% year-to-date growth.
• Communication: 7% growth, expected to grow in Q3.
• Medtech: Flat performance.
• Industrial: Expected to start growing in Q3 and Q4.

Release Date: July 14, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Note AB (LTS:0GSS, Financial) reported SEK980 million in sales for Q2, aligning with expectations despite a SEK35 million negative currency impact.
• The company maintained a strong financial position with an equity ratio of approximately 49% and a cash position of SEK634 million.
• Operating profit remained robust at 9.6% underlying, with a year-to-date figure of 9.8%, reflecting consistent profitability.
• The order backlog increased by 6% compared to the first quarter, indicating positive customer sentiment and future growth potential.
• Strong growth was observed in the green tech and security and defense segments, with year-to-date growth rates of 15% and 18%, respectively.

Negative Points

• Sales in the UK were significantly impacted, with a 34% decline due to a major customer zeroing out orders for the first three quarters.
• Currency fluctuations, particularly the stronger Swedish currency, are expected to reduce annual sales by approximately SEK100 million.
• The company experienced flat or reduced sales in recent quarters, raising concerns about growth momentum.
• The industrial segment showed low performance, although there are signs of improvement in order intake and forecasts.
• Price pressure in lower-cost regions remains a challenge, necessitating efficiency improvements and cost management strategies.

Q & A Highlights

Q: Can you provide some color on the expected contribution from the new capacity in Q4 and the volumes needed to sustain the margin?
A: Johannes Lind-Widestam, CEO, explained that if they hit the lower end of their guidance, they will be around the midpoint of profitability expectations. The new capacity in Torsby is more about future growth adjustments rather than immediate sales impact.

Q: What are the dynamics expected between the next two quarters considering the easier comparisons in Q3?
A: Johannes Lind-Widestam, CEO, stated that both quarters are expected to show similar percentage growth. The Swedish factories will have a 2-3 week closure in the summer, impacting July sales, but this is a strategic decision to manage capacity efficiently.

Q: Can you elaborate on the large order announced in security and defense?
A: Johannes Lind-Widestam, CEO, confirmed that the order is more towards defense rather than security.

Q: How do you expect inventory turnover to develop if the market turns up?
A: Johannes Lind-Widestam, CEO, mentioned they expect inventory turnover to be around 4% to 5%. They are currently at 4% and aim to reach 5%, with SEK100 million more in inventory reduction expected.

Q: What is driving the strong growth in the rest of the world?
A: Johannes Lind-Widestam, CEO, attributed the growth to a recovery from last year's negative growth, particularly in Estonia and China. Estonia is seeing good growth, and China is recovering, though still below desired levels.

Q: What kind of multiple EBIT are you willing to pay for M&A targets currently?
A: Johannes Lind-Widestam, CEO, noted that historically, multiples have been around 7% for flat businesses and up to 9%-10% for those showing good growth. Defense-related targets may have higher multiples.

Q: What geographical areas are you looking into for acquisitions?
A: Johannes Lind-Widestam, CEO, stated they are focusing on Europe, with potential targets having their head offices in Europe, though some may have business outside of Europe.

Q: How do you aim to offset price pressure in the rest of the world?
A: Johannes Lind-Widestam, CEO, explained they are investing in automation and better equipment to drive costs out of the production process and maintain margins.

Q: Why is revenue per employee lower in the rest of the world compared to Western Europe?
A: Johannes Lind-Widestam, CEO, explained that the nature of business in lower-cost regions involves higher work content, requiring more employees for the same sales. They are working on automating activities to improve this metric.

Q: Is there any other reason besides FX for lowering the sales guidance for 2025?
A: Johannes Lind-Widestam, CEO, confirmed that the adjustment is primarily due to FX effects, with no other significant factors impacting the guidance.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.