Earnings call transcript: NCAB Group Q1 2024 reports mixed results

NCAB Group’s Q1 2024 financial results showed a modest increase in net sales to 958 million SEK, up 1% year-over-year. The company’s EBITDA fell by 30% to 100 million SEK, with a reduced EBITDA margin of 10.4%. This performance comes amid challenging market conditions, with InvestingPro data showing a -11.59% revenue decline over the last twelve months. Despite these mixed results, the company continues to focus on strategic initiatives such as acquisitions and IT system rollouts. The stock saw a significant drop of 19.26% following the announcement, closing at 46.94 SEK.

Key Takeaways

• Net sales increased by 1% year-over-year to 958 million SEK.
• EBITDA decreased by 30%, impacting the EBITDA margin.
• Stock price fell by 19.26% following the earnings release.
• Continued investment in printed circuit board (PCB) capabilities and IT systems.
• No dividend declared due to market uncertainty.

Company Performance

NCAB Group reported a slight increase in net sales for Q1 2024, reflecting stable demand in the PCB market. The decline in EBITDA and gross margin indicates challenges in maintaining profitability, though InvestingPro analysis shows the company maintains strong financial health with a current ratio of 1.75 and an Altman Z-Score of 9.76. The company’s strategic moves, such as the acquisition of BNB Leiter Platten Service, aim to strengthen its position in key markets like Northeastern Germany. The ongoing IT system rollout and reduced reliance on Chinese sourcing are part of its efforts to diversify operations and mitigate risks.

Financial Highlights

• Revenue: 958 million SEK, up 1% year-over-year
• EBITDA: 100 million SEK, down 30% year-over-year
• EBITDA margin: 10.4%
• Gross margin: 34.7%, down from 38.1% in the previous year
• Earnings per share: 0.28 SEK, down from 0.48 SEK last year

Market Reaction

NCAB Group’s stock experienced a significant decline of 19.26%, closing at 46.94 SEK. This drop reflects investor concerns over the company’s reduced profitability and the broader economic uncertainties affecting the market. InvestingPro data indicates the stock is trading at elevated multiples with a P/E ratio of 28.82 and an EV/EBITDA of 20.94, suggesting potential overvaluation. The stock’s movement contrasts with its 52-week high of 89.7 SEK, highlighting the volatility in investor sentiment. For deeper insights into NCAB’s valuation and 12 additional ProTips, consider exploring InvestingPro’s comprehensive analysis tools.

Outlook & Guidance

Looking ahead, NCAB Group expects to maintain a gross margin of around 35-36% and continues to pursue an active mergers and acquisitions strategy, targeting 2-5 acquisitions annually. The company remains cautious about potential market shifts due to tariffs and economic uncertainties, emphasizing financial flexibility to seize strategic opportunities.

Executive Commentary

CEO Peter Crook noted, "We are a company present in 19 countries, serving some 50 markets," underscoring NCAB’s extensive global reach. He also highlighted the company’s acquisition plans, stating, "We expect to make two to five acquisitions also in the current climate," indicating a proactive approach to growth amid market challenges.

Risks and Challenges

• Economic Uncertainty: Global economic conditions and tariffs pose risks to profitability.
• Supply Chain Diversification: Reducing reliance on China is crucial but challenging.
• Market Competition: Intense competition in the PCB market could pressure margins.
• IT System Implementation: Successful rollout across regions is critical for operational efficiency.
• Defense Sector Growth: Potential growth in this sector needs strategic alignment.

Q&A

During the earnings call, analysts inquired about the impact of tariffs and the company’s cost management strategies. Management emphasized their focus on transferring tariff impacts to US customers and maintaining financial flexibility to navigate economic uncertainties. The ongoing diversification of manufacturing locations was also discussed as a strategic priority.

Full transcript - NCAB Group (NCAB) Q1 2025:

Conference Moderator: Now I will hand the conference over to the CEO Peter Crook CFO Timothy Benjamin and Head of Investor Relations, Gunnila Oman. Please go ahead.

Peter Crook, CEO, NCAB Group: Good morning, and welcome to our q one report. My name is Peter Crook, and I’ll be starting the presentation today. Again, for the new listeners, NCAB’s focus, the company, focus solely on printed circuit boards, and these are unique bespoke products that are the heart and foundation in any electronic or intelligent product that we supply. And these are the green boards that you see to the left on on this slide. We are a company present in 19 companies across in 19 countries, 19 companies, serving some 50 markets with a little bit more than 600 employees and serving our customers with the help of some 33 main partner factories.

We have no in house manufacturing, but instead of working with partners, and we have out of out of our 600 employees, we have some 100 plus who are working specifically with developing a factory base and working on continuous improvements with our partners. If we then move to quarter one. So it’s a quarter where I think they have some positive news. We positive on the positive side, we can see an improved order intake. We’re up some almost around 10% versus where we were in q four and q three.

So clearly improving, and it’s good. What we can see is it’s a strong order development in North America and East and also better than what was actually already a strong q one last year. Europe is improving versus q four even if it’s slightly behind where they were in in q one last year. Revenue as a consequence from our q q three and q four order intake is lagging behind, but it’s recovering from q four as we saw some of those seasonality effects that made q four extra week come back in q one and support us. Gross margins are down a little bit versus q four.

EBITDA is recovering the with the volume. The we see quite a bit of FX impact in the quarter. These are primarily non predominantly revaluation effects, so nothing that is something that’s gonna continue going forward. And there’s also some mix and also some dilution effect from the acquired companies that are part of our numbers. Elibita has recovered now with our revenue to a better level than what we saw at the end of last year.

We are in a pro in in a situation right now where we’re handling tariffs for our primarily our US customers. I think they create, of course, some challenges, but there are also opportunities for NCAB to forward its positions. Regarding tariff costs, these are costs which are transferred to our US customers. We have been living with tariffs since the previous Trump administration, but now we are, of course, overlapping to the new levels of tariffs that are applied. But it also gives an opportunity for our US customers to find alternative suppliers.

NCAB has invested over the last couple of years in building a factory base outside China, which is the main manufacturing nation, and that gives opportunities right now to help customers find new sources for supply to potentially offset some of the tariffs. Also very positive is that we have been able to continue with our m and a activities, And we, two days ago, announced the acquisition of BNB Leiter Platten Service in Germany. BNB Leiter Platten Service is a company in what is in Saxony, so the former Eastern part of Germany, and they had a good coverage for us in this part of the German nation. They are focused very much on industrial and energy customers working with energy metering products and so forth. Very good technical levels, we get a lot of good employees join the company.

They used to run a factory up until 2022. So we have a lot of skills inside the company, which is a good asset for us as we take the company forward. Revenue last year was around hundred and 50,000,000 SEK, and they had an EBITDA a healthy EBITDA level above 20,000,000. So we will gain now some 25 employees based in Germany mainly and some in China who would be joining our business. And we expect to close this transaction here in the May.

If we then look at q one in the numbers perspective, we can see that our order intake is up around 5% versus last year. Of course, here we are supported by the by also partly by our acquisitions. But in order intake in US dollars, we’re up 2%, and we also have a continued strong book to bill of one point o six. Net sales is up slightly versus last year, but here, of course, organic growth is down a little bit since we have the acquisitions that are supporting the year on year comparisons. EBITDA compared to last year decreased.

We are now at 100,000,000 SEK, but it’s an improvement clearly from where we were at latter part of last year. We’re now at a margin of 10.4. This again is a little bit lower from the FX effects we have seen and some mix changes in in in the first quarter, which we expect to correct itself going forward. Operating cash flow at 53,000,000 SEK. Working capital up slightly.

This is partly tied to some of our n c b one or EOP implementation where we are sort of cleaning up some accounts payable as we go live in new entities, and that temporarily has lifted the number somewhat. Even though we have a strong end end of q one in terms of order intake and we don’t really see any negative news in our numbers. We have given the big uncertainty that we see in the overall market with tariffs and potential impact this could have on the on the general economy, we have taken the decision to in order to sort of have financial flexibility to also continue with an offensive m and a agenda. We’ve decided not to pay out a dividend in light of the current market uncertainty. With that, I’m giving the word to you, Tim.

Timothy Benjamin, CFO, NCAB Group: Thanks, Peter. As you hear from Peter, about 1% up on the sales side versus quarter one twenty twenty four in US dollars down about 22%. And we had EBITDA come in around 30% lower at 100,000,000 SEK in the quarter, but sequentially up. And we also landed the quarter at 10.4%, as you heard from Peter, with some FX effects at 10.4. When we look at how the the top line has now stabilized a bit and you start to see order intake posting some better numbers, we also see gross profits stabilizing a bit around the 35, 30 six level in the the last twelve months.

And the other thing that we see on the order intake side is around a a 5% growth in total, and in comparable units in US dollars down by about 5%. We do see some positive developments, some some positive likes on the Nordic side, especially versus recent recent quarters. And East has also been quite positive within the quarter, but we still see some some weak demand on the European side. Net sales up by about 1% to around nine fifty eight, and in comparable units down down by about 8%. We see positive book to bill of one point o six and continued good trends in new part numbers and new customers won.

So overall, that puts the EBITDA to 100,000,000 SEK. We see that when we compare versus the prior year caused by lower revenue in gross margins. We also have gross margins at around 34.7% compared with 38.1% prior year. Part of that is is pricing, but part of it is also higher higher freight costs as well. That puts our earnings per share at 28 0.28 SEK versus 0.48

: prior year.

Peter Crook, CEO, NCAB Group: Thank you, Jim. Moving over to a little bit of a closer look at the segments. So the Nordic segment had a little bit of a weaker order intake in the quarter, also slightly down both versus q four and also down versus versus last year. We can see some mixture of activities here. I think we can see positive trends in countries like Denmark and Finland, for instance, where we see growth both sequentially and also versus last year.

Norway as a market was quite a bit weaker. We had in the beginning of last year still quite strong EV business. I mean, we have talked about the EV business being an important part of the Nordic business, and that has been quite slow during ’24. I mean, we are we’re happy to see that our customers in this field are ramping up and are are delivering our product during this year, but they still have had some work to get through their inventory. So we’re expecting this to start recovering here later in the year for us as well.

Net sales was up a little bit versus last year. It’s up 4%. But we what we’ve seen on the margin side, we have quite significant effects. I think it’s for the for the group, it’s around, I think, 1% year on year on the gross margin impact. But for the Nordic segment, it’s significantly more.

We will see that some other segments, maybe it’s been slightly positive. And this is purely sort of related to revaluation effects of the existing AR and AP that we have. So nothing that has as a long long term impact. And I think with with the big swings we’ve had in the currencies during quarter one, this has created extreme effects in this specific quarter. And that also then has trickled down to the EBITDA level.

So EBITDA is down to 24,000,000 SEK versus 41 last year, and the margin is down to around 11% versus 19 of last year. Looking at Europe, we are positive to see that the order intake is continuing up. We are now up I mean, last quarter, we were around 430,000,000, so a big step up on the order intake sequentially and also close to where we were last year. Although if you take out the acquired companies, we are still some 30% between behind what was still a strong start of last year in the European markets. But it’s positive to see that, say, that the the trend sequentially is positive, and we can also see that year on year, we’re also seeing positive development in a number of markets in Europe like Spain and Benelux.

So I think the trend and the momentum is moving in the right direction or have been in the last in the first quarter. Net sales down 1% versus last year, but a big jump up, of course, versus q four where we had net sales of 365,000,000 SEK. And this is large part of that was seasonality, which made q four extremely low. And now we gained some of that back in in in q one. Organically, revenue is still down and connected to the to the low order intake that we saw in last year.

So EBITDA decreasing versus last year to 55,000,000 SEK, but with a margin of 11.2 versus 15.2, but a big step up from the q four where it was just small positive number. Going to The US, order intake, very strong. So good positive development here. We had a slightly weaker order intake during q four after, I say, overall, a good year in terms of order intake development, but q four was was a bit weaker. And this is also reflecting into our net sales numbers, which are a bit lower.

And also here, one needs to factor in when one compares the 88 with hundred and ninety one of last year that we had a overall in the quarter a higher US dollar, which actually means that in US dollar terms, the revenue was actually slightly lower than last year. And that means that also has had an impact on the on the margin in in the business in addition to some product mix where we have seen some more of our certain product or technologies that we’re supplying, which has been hiring the share of the overall business. The tariffs are being transferred to customers. Effects in q one are still very, very small as the, say, the new tariffs start to come into effect from February and then March. And since it’s based on orders hitting the ground in The US, so we’ll really start to see see the impact on top line in in q two from the tariffs.

So EBITA is down to 18,200,000.0 SEK from last year’s ’24 and predominantly driven by lower gross margin, but also in relation to sales higher SG and A due to the fact that, say, in US dollar terms, our sales were were were lower. And then moving over to east where we can see also here strong order intake. And here, we also had good order intake in q four, which is also helping the net sales development. So the market in China, you can see, has been slowly improving. We have still seen a good influx of new customers in high technology applications.

We can also see that, say, lead times for high-tech material is starting to grow. This might then spread to to other markets going forward and might also might also be a sign then that prices might start to move up. Overall in the business, healthy margins. We EBITDA increased to 8,200,000.0 SEK versus six, and the EBITDA margin at 16% versus 15 last year. And we continue to run the business here with good gross margins connected to the high-tech services we are providing in conjunction with these sales.

Okay. Over to

Timothy Benjamin, CFO, NCAB Group: you. Thanks, Peter. Return on equity in 2025, down a bit versus 2024 when we were at higher volumes. Net debt to EBITDA, still at a very healthy level of 1.6 versus prior year at 0.7. And as you remember, our our targets are around two point zero.

Equity to asset ratio, fairly stable year on year at around 41.9 versus 43.7 last year. Net working capital, up a little bit. Remember, we do acquire companies here, and when we acquire companies, we also acquire net working capital. So you have networking capital percentage last twelve months at around 9% versus eight. Still quite a bit of available liquidity at 1,355,000,000.000 versus 1.1 last year.

As you heard from Peter, the board has proposed a zero dividend. Also, together with the available liquidity that we have there, leads for some good good possibilities in the next next few quarters. Mhmm.

Peter Crook, CEO, NCAB Group: So we continue with our m and a process. We continue to have a very good healthy pipeline and progressing with our discussions. So we were glad to conclude the negotiations here with BNB here in the last couple of days. And then this, of course, is it remains a strong focus for the company. And with BNB, like, partner service, it’s matching also part of our strategy where, on the one hand, I mean, we remain fully focused on PCBs, which is sort of a good sort of a good healthy market for us to stay in where we can see good growth opportunities.

We are investing in in our capabilities to grow our market shares the markets where we’re present, but we’re also looking to expand our geographical position and our footprint and coverage and support our customers locally. And the acquisition of BNB, like part of the service, gives us a very good strengthening opposition in the Northeastern Part of Germany and serving the customers in this region in addition to getting a lot of good employees to join us. And then finally, also from a market consolidation perspective, we do anticipate a lot of good opportunities, especially in the current uncertain climate, to further activate our m and a activities. And having the financial flexibility is a good means to be able to support that part of our strategy. And with that, I think we conclude our presentation and open up for questions.

Conference Moderator: If you wish to ask a question, please dial 5 on your telephone The next question comes from Johnny Jin from SEB. Please go ahead.

Johnny Jin, Analyst, SEB: Yes. Thank you, and good morning, Peter and Timothy, for taking my question. I just will start a little bit here on North America. It looks like, the order intake is rather strong there. Is this also an effect from you seeing prebuying some prebuying effect in North America?

Can you shed some comments around that? And also, are you seeing some change in your customers’ behavior? Could you elaborate a little bit on that?

Timothy Benjamin, CFO, NCAB Group: Thank you.

Peter Crook, CEO, NCAB Group: No. Thank thank you for your question, Johnny. You know, to be honest, I mean, we have seen, as you said, strong order intake in q one, and we we had strong order intake during last year, bar the the fourth quarter as well. And to be honest, I don’t we don’t really see a change. I mean, what we I mean, we are early days in the in the second quarter, so we can’t really say draw long term predictions, but we have not seen any direct impact on our order intake pattern from The US after the latest rises in in in tariffs.

Where where there are opportunities, of course, is and this was something that started already during the second half of last year, an increasing interest from our US customers to sort of explore our factories factory opportunities outside China. I mean, last year, of what we supply to US customers, on our on in total, I think some 47% of what we sourced came from China for The US customer base. I think we can see that that share has dropped a little bit. We see more quotes being asked from and more orders being placed to some of our non Chinese factories in quarter one. But I think that is a change.

We have not seen a change in the demand as such.

Johnny Jin, Analyst, SEB: Okay. So no real, prebuying effect No. In Tiranda, I suppose.

Peter Crook, CEO, NCAB Group: No. Not that you know?

Johnny Jin, Analyst, SEB: And then just following up a little bit yeah. Okay. And then on the theme of Paris, I guess you will increase your prices here in The US particularly and push that on. Do you think this will lead to higher organic growth, or do you think that the demand will shrink as well going forward? Just trying to understand the the net effect for you here a little bit better.

Peter Crook, CEO, NCAB Group: I think for us, I mean, what we what we will see for sure is, of course, say, we we will see a top line growth in The US from the tariffs if they remain in the current levels, where they’re, like, around a 40% or depending on which technology. So, of course, that will have have an impact. I think the what they’re where the uncertainty is is to what ex what to what extent will these tariffs and other trade war activities have a negative impact on the general sentiment in the industry? And that would then not apply specifically to The US only, but I guess globally. And I think that is, I guess, where we see a potential uncertainty even if we maybe don’t see it yet in our own order intake neither in q q one or the first few weeks of q two, it is an uncertain global market right now.

And I think that is the uncertainty that we want to sort of give us freedom to to manage in a good way.

Johnny Jin, Analyst, SEB: Yeah. Okay. And then just shifting focus a bit here to the gross margin. How should we think about, about that going forward? It seems like it took a step down here a bit both year over year and sequentially in the quarter.

And think this is the third quarter in a row with sequentially lower gross margin. So I mean, is it fair to assume that this will continue ahead, especially given the tariff situation? Now I know it’s uncertain, but you talked about that could be dilutive. So so could that potentially accelerate the decline ahead? Or what normal level can we expect there going forward?

Peter Crook, CEO, NCAB Group: If we if we look upon things excluding the tariffs to start with, then we don’t I mean, as we’ve said before, I think we expect us to be somewhere in that range 35, 30 six percent as a stable level to continue to to keep. In this in this quarter, we had quite a significant FX impact that maybe sort of had sort of an add on negative effect. So, I mean, if you compare year on year, as we’ve discussed previously, we had end of twenty three and beginning of twenty four. We still had an impact when the the market price were declining quite substantially during ’23, and there were some elements where we were negotiating with the factories and maybe getting some savings in our books before we were transferring over to customers. And that gave us an extra boost in the gross margin at the end of twenty three and the first half of twenty four.

So that level that we have been in the, say, second half of twenty four around 35, 30 six percent, I think it’s something we should expect to continue. So we in q one right now, we had a couple of negative on add ons from the FX notably that sort of pushed us down, but we don’t expect that trend to continue.

Johnny Jin, Analyst, SEB: Alright. And then just one final one from my side, shifting to the European market here. Could you maybe elaborate a little bit more what you’re seeing there, if you’re seeing a recovery in other important markets in Europe? I mean book to bill looks to be around one in Europe this quarter. So is it fair to assume that performance ahead would be rather flattish and stable demand sequentially going into q two?

Is that fair, would you say?

Peter Crook, CEO, NCAB Group: I would actually say, I mean, if if you I think when when one looks at the book to bill, it’s a little bit dangerous because you have that year end effect, which is quite substantial also in Europe. So, I mean, part of the revenue that you saw now in in in q four and q one, q ’4 was extremely low in Europe at only, like, 365,000,000, and now it’s around 450. Maybe you had $3,040,000,000, which was kind of a carryover between the two years. So in reality, we have a positive book to bill in in Europe now in q one if you were to look upon how things are running operationally. So at the same time, I mean, the the economy is still in some parts of Europe strained.

So and but, I mean, I think we were starting maybe to see some positive signs of recovery. What may happen now with the ongoing sort of global tariff discussions, will that have an impact? That is, I guess, where there’s an uncertainty even if maybe we don’t see concrete signs in our numbers yet.

Johnny Jin, Analyst, SEB: Alright. Understand. Thank you for taking my questions. That was all for me.

Peter Crook, CEO, NCAB Group: Thank you.

Conference Moderator: Next question comes from Jacob Edler from Danske Bank. Please go ahead.

Jacob Edler, Analyst, Danske Bank: Hi, and thanks for taking my questions. My first question is just coming back to, I guess, the dividend cut here. And maybe if you can shed some more light on why the decision was taken right now. I mean, in my book, net debt to EBITDA is at around 1.5 times. You’re talking about at least tariffs not showing that much impact right now.

Just excited to hear a bit more on how for example, how is the M and A momentum and how much is actually coming down to the big uncertainties here regarding tariffs? Just just add some more color on the dividend cut.

Peter Crook, CEO, NCAB Group: I think it’s very much a it’s a combination of different things. And I think it’s you can we can make a little bit of a comparison to our situation that we were in in the spring of twenty twenty as a company. At that time, we were just sort of concluding two acquisitions in the spring of twenty twenty just as the pandemic broke out. And at that time, there was also this concern, what will happen with the pandemic? Will that drive the market in a direction that could could strain on our financial situation?

And then at that time, we we made an extra sort of share share issue to shore up the financing. In the end, we did not need that money, and we actually made an extra dividend the following year to give that back to the shareholders. And I think we are now in a situation where we are happy that we’ve been able to conclude this acquisition here now. We we have an active ongoing discussion with a number of potential acquisition targets. And given again the uncertainty, will there be a potential impact on the global economic development that could potentially have an impact on our numbers as well?

We wanted to keep our powder dry to be able to sort of continue with our strategy and give us that financial flexibility.

Jacob Edler, Analyst, Danske Bank: Yep. Okay. Clear. But just to get just to get it clear, mean, you haven’t seen any, you know, signs of customers, you know, pausing here at the start of q two. I mean, no major delta in activity on on the customer side in q two versus q one, thus far?

Peter Crook, CEO, NCAB Group: No. We we don’t see anything specifically in our numbers just yet. So

Jacob Edler, Analyst, Danske Bank: Okay. Perfect. Just getting back a bit on the on the gross margin. I mean, it’s down a bit year over year, more than three percentage points, right? And obviously, you had those favorable pricing effects last year that obviously are gone now.

But I’m just wondering, of that year over year development, how much would you say is related you know, product mix, which is temporary, and the FX, which also is temporary, and how much is price? Can you maybe add some more flavor there if

Peter Crook, CEO, NCAB Group: that was?

Timothy Benjamin, CFO, NCAB Group: The majority the majority is price. We have some some FX and and some product mix, which you could probably chalk up the majority on on the pricing side. And the FX is really only temporary.

Jacob Edler, Analyst, Danske Bank: And I’ll I’ll and how is the product mix? Is that temporary as well? Or

Timothy Benjamin, CFO, NCAB Group: No. I wouldn’t I wouldn’t say that’s temporary. It can fluctuate up and down depending upon what type of products the customers order.

Peter Crook, CEO, NCAB Group: I think we’ve seen some flexibility for, say, both North America and Europe and Nordics had a little bit of that mix shift between customers and and that in combination with them, the the FX on top. And that’s also where you see probably the decline from, say, q three, q ’4 versus now q one. That is largely the FX and the and the mix shifts here. Yeah. Those are not sort of long standing either in relative.

Jacob Edler, Analyst, Danske Bank: Okay. Perfect. Then just a last question. On on price, it seemed in the report that, if I understood you correctly, that I mean the price level kind of stabilized a bit, at least sequentially in order intake. Is that a correct conclusion?

And would you say price was relatively flattish year over year in order intake? Or how did it look?

Peter Crook, CEO, NCAB Group: Yeah. I think order intake wise is pretty flattish, I think, on the order intake side. I think, I mean, of course, maybe you could say, mean, yes, we had in q one on the revenue side, then you had you had the margin impact. But on the order intake side, not big impact on the on the pricing side. So I think that is sort of reasonable to stay.

I think what we’ve been seeing has been sort of the question say, the market the the factory loading has been improving during the latter part of of ’24 and beginning of twenty one. And that would, of course, indicate at some point that we would see both lead times that we are seeing for some high-tech materials already now, but also that the you we could anticipate that some of the price styles that we saw during, say, 2324 would start to climb back up. Now, I guess, there’s a little bit of uncertainty again from the global economic development, and maybe that will again sort of push back a little bit, I think, right now on any potential price increases. But

Jacob Edler, Analyst, Danske Bank: Yep. Perfect. Thank you. Those were my questions.

Peter Crook, CEO, NCAB Group: Thank you.

Conference Moderator: The next question comes from Marcus Develias from DNB. Please go ahead.

: Yes. Thank you. Hello, Peter, Timothy and Gunilla. Just my first question is a bit bit broader, but the tariffs, it’s not the first time you experience it. What lessons do you take with you this round to handle the situation as smooth as possible compared to, let’s say, 2019?

Peter Crook, CEO, NCAB Group: I have to say, I think we have a pretty good process in place for this. I mean, we’ve we’ve handled it, as you said, for for a number of years now. And I think in the first time it happened, then you had a little bit of this wait and see where when the tariffs came into play that orders paused for a while, people were uncertain, all the tariffs really come gonna come into effect. I think we’ve seen less of that this time. So I think we’re quite well prepared to manage tariffs, and our customers are accustomed to paying tariffs on our products historically.

I think what what creates is an extra workload for our team right now is, of course, to handle all these different tariff levels and the changes to understand what is being shipped from inventory that has a certain tariff level and what is right now landing in the docks and is gonna pay another tariff level and to manage that process. So it increases a little bit of our manual workload to ensure that we are handling this work correctly for our customers. But otherwise, I think we’re we’re quite well set up to handle this process, our customers, as I said, are are are well aware of the situation are able to handle it.

: Okay. And and let’s say your US customers want to increase their sourcing from outside of China. Are you seeing any ramp up investments of factories outside of China, like, after the the tariffs was announced? What are the discussions there?

Peter Crook, CEO, NCAB Group: I think this has been going on actually quite some time, so I don’t think this has changed specifically in the last few weeks or months. But it’s something that was already been sort of going on during the second half or during 2024. So there is a a number of new factories being established in in in Southeast Asia predominantly. We’ve been working actively with this for a couple of years. So we have had historically factories outside China, and we have grown that portfolio of factories supporting our customers.

So we are quite actually in a very good position to help customers make that transition. And I think it’s also a very good opportunity for us to win more business because, I mean, part of our customers or potential customers have also had an organization where they need to resourcing directly. They had long standing relationships with a few factories, which has served them over over a period of time. Now quite a few of them are looking at a situation where they wanna move out from those Chinese factories. And to then identify new factories in a different region is quite a big task if you don’t have the setup for it.

So I think this is an opportunity for us to build up relationships with customer who previously were buying the sell themselves directly.

: Okay. Thank you. Those were my questions.

Peter Crook, CEO, NCAB Group: Thank you.

Conference Moderator: The next question comes from Gustav Birneblad from Nordea. Please go ahead.

Gustav Birneblad, Analyst, Nordea: Yes. Good morning. It’s Gustav here from Nordea. Just to start off on the margin side as well here. I mean you have a quite good table here in annual report of the sort of FX impact on earnings, but a quite strong tailwind here in recent years.

But just based on the levels where we are today in terms of FX, how should one think about the EBITA margin development sort of once demand takes off? I mean, you comment on a gross margin likely to continue to hover around 35%, thirty six % longer term. But on EBITA level, it possible that you still would reach north of 14%? Or should we assume sort of the implicit margin of your financial target here of sort of 12.5%? Is that more closer?

Timothy Benjamin, CFO, NCAB Group: I think we don’t give forward guidance, first of all. But what I can say is when you when you look at the FX impacts, what we saw at least in this quarter primarily was the sort of APAR revaluation of of things that have largely already happened. So invoices that already went out, and now we revalue them at a at a weaker US dollar. A lot of our purchasing and sales is done in US dollars. So you don’t tend to see these fluctuations over the medium long term, but you will see fluctuations both up and down, which you see in our numbers, on the short term, so sort of quarter to quarter.

So we we don’t expect to see any type of medium long term impacts from from FX just because of that sort of natural hedging that we have in the business.

Gustav Birneblad, Analyst, Nordea: Okay. Got it. And then on the margin in North America here, I mean, you comment on the product mix. But would you say that the complete sort of three thirty basis point year over year margin delta is related to this? Or and also, what specifically is driving the mix here?

Timothy Benjamin, CFO, NCAB Group: No, I think there’s a couple of effects here. Part of it, yes, is the fact that there are some high growth, low margin products that we do sell in The U. S, still good profitability, but but lower gross margin than the rest. And then part of it is the fact that we believe in in the sort of longer term growth story in The US. So we also do, ramp up the organization to take advantage of that, which you heard a little bit from Peter in in terms of the the sourcing possibilities that we offer new customers.

Peter Crook, CEO, NCAB Group: And on the mix side, I mean,

Jacob Edler, Analyst, Danske Bank: we have

Peter Crook, CEO, NCAB Group: our acquisition in phase three a few years back. They have part of their product portfolio. They have slightly lower lower margins overall. And when they have had a good sort of delivery or a high share of the deliveries during the quarter, that can have a slightly adverse impact as well. So I think this is what we’ve seen in this this specific quarter.

And then on on generally lower sales than than what we’ve seen in the previous quarters. So I think that’s behind the the drop.

Gustav Birneblad, Analyst, Nordea: Yeah. Okay. Perfect. And then and then just on the IT rollout here, I mean,

Peter Crook, CEO, NCAB Group: can we talk a little

Gustav Birneblad, Analyst, Nordea: bit about Q2 and Q3? I think you’ve commented previously that it will increase in terms of expenses, but also you will target North America. Can you just specify a little bit more of the IT rollout going forward here? Which regions will be affected?

Timothy Benjamin, CFO, NCAB Group: Yeah. Sure. So you you heard from us back in in quarter four that we had one of our larger, go lives with with Germany. That one just went live. We also did, our our Group Function headquarters in quarter one.

And at the tail end of quarter one and in the the first weeks of quarter two, we did one of our our other large units, Benelux. In quarter two, towards the end of it, potentially early quarter three, that’s when you’ll see one of our largest entities, our US entity, go live. We have been saying that the cost for this rollout has been around 10,000,000 SEK per quarter. And again, without giving forward guidance, we don’t expect, to see that change much. Again, The US The US entity is one of our largest most complex ones.

So if there is one that requires a lot of extra effort and travel, it’s that one. But after you could say basically after The US, we still have entities left to go live, but they’re all smaller.

Peter Crook, CEO, NCAB Group: Yeah. And typically, you you get it even if it’s like ten ten million sec a quarter on average. We have a little bit of a shift. We say, typically, q two and q four, just like last year, will be more intense. Like, we’ll have the tail end of the Benelux go live here in quarter two, and we’ll have US.

And then during quarter three, you have more preparations for the latter part of the the year go lives, which will predominantly be in the end of q three, maybe starting on q four. So so you will have, again, most likely, a slightly lower cost level in q three and a higher again in q four.

Gustav Birneblad, Analyst, Nordea: Perfect. That’s very clear. And and then just on defense here, I mean, we saw in the annual report 6% of group sales. Would you say that it’s significantly higher here in Q1? And then also, I would just regarding the order intake here a bit stronger, but should we think about that translating into sales in Q2?

Or

Peter Crook, CEO, NCAB Group: I I think overall, the the order intake in q one should indicate, I mean, that we have a healthy order book going into q two. I mean, traditionally, we have been on average roughly a quarter behind in in revenue side. That can vary a little bit, so it’s not a perfect size. But if you I mean, the the the order intake development from q four and q one is a positive sign for the future revenue development, clearly. On the defense side, I would say we did not actually have so much more defense orders in q one.

So that was actually a little bit lower, which maybe also partly impacted the the order intake in Nordics, which was a little bit behind. We have a number of projects going on, so we expect that to continue on a high level and to be a growing business in 2025, even if maybe q one was not really heavily influenced by defense orders.

Gustav Birneblad, Analyst, Nordea: Yes. Okay. Perfect. Sorry, just one last quick one here. I mean, in terms of the high freight rates you also comment about, is it possible to say anything about the impact here on top line gross margin?

Timothy Benjamin, CFO, NCAB Group: You could say minimal impact on top line and a slight impact on the gross margin without going to exact details. It’s a slight slight impact year over year. We saw freight rates really start to grow go up in in quarter four. We tend to see them in a little bit of a delay versus the actual market itself, and then we started to see them come down a little bit towards the end of quarter one.

Peter Crook, CEO, NCAB Group: And I think that is where maybe you have that seen a little bit of release of a short term impact on the on the gross margin side when they have been sort of climbing upwards during the second half of last year and into this quarter also. That, like, whilst pricing is being adapted for new freight costs, the the true up freight costs actually coming slightly higher since they’ve been climbing up during this period of time. And I think that has also maybe had, as you said, a small impact on the gross margin as well in the first quarter.

Conference Moderator: The speakers for any written questions or closing comments.

Gunilla Oman, Head of Investor Relations, NCAB Group: Thank you. And we have a couple of written questions. And the first one comes from Carl. How active is the current M and A pipeline? Do you expect to sign more add ons during the year?

Peter Crook, CEO, NCAB Group: I mean, m and a is very is a very core part of our strategy. I mean, we’re we’re basically looking to grow over time equal amounts through acquisition as from organic growth. So, yes, we have a very active pipeline. I think there is a good opportunity to make deals in in in the current climate also. We’ve historically had the ambition to sign somewhere between two and five company acquisitions per year.

It’s always a little bit hard to predict because you’re always you’re at least two parties that need to come to an agreement. And since we are talking in many in most cases to family owned companies, it’s it’s very much personal matter for the sellers, and these discussions can can take different length in time, which we can somewhat hard to predict. But we expect to make two to five acquisitions also in the current climate.

Gunilla Oman, Head of Investor Relations, NCAB Group: So the next question comes from mister Case, and he asked for USA customers. I understand that only 50% of these PCBs are coming from China. Yet how can a customer accept to take such a steep impact of tariffs?

Peter Crook, CEO, NCAB Group: I mean, think on the one hand, there’s not much one can do. The tariffs are there, and we can, of course, not absorb them. And then but I think we also need to remember that in in in our applications, the the cost of the PCB roughly represents one or 2% of the total bill of material. So we are overall a low cost item in the general bill of material. And, of course, as these grow, there will be an increased incentive to look for other markets.

Right now, the Chinese tariffs are on extreme levels. I mean, historically, we have lived now for a long period of time with tariffs in the order of 25%, and then China has still been very competitive to to most other markets. So with with with tariffs where they currently are, the incentive is clear to move to other factories like Vietnam, Thailand that you mentioned, and we are happy to help our customers do that. Then we’ll have to see, of course, if the Chinese tariffs remain at that level.

Gunilla Oman, Head of Investor Relations, NCAB Group: Okay. Great. Next question came from Thomas Blickstad at Pareto, and he asks about The Nordics that we saw growth due to orders received in in ’24, in the latter part of ’24. A significant portion were defense orders, he says. Can we expect similar growth development in The Nordics going forward from stable deliveries of these orders, or is it more likely with fluctuations quarterly?

Peter Crook, CEO, NCAB Group: I think we I mean, in our business, there is still a level of fluctuations, but I think we we as you mentioned, we have a number of defense orders that we booked with longer lead times during last year, which will be sort of delivered during a large part of ’25 and also into ’26. They will, of course, provide a foundation to revenue, but we can expect to see some fluctuation on top as well. But we will have, of course, those orders that we booked during last part of last year will continue to prop up the the revenue streamline in in Nordics.

Gunilla Oman, Head of Investor Relations, NCAB Group: And he also had a bigger picture question. With the current tariff potential, many manufacturers will struck struggle with supply chains sourcing PCBs. Do you believe PCB manufacturing will grow in Europe or US as a result?

Peter Crook, CEO, NCAB Group: I I think right now, the biggest challenge is the uncertainty. It’s very hard for I mean, making a PCB manufacturing, investing in a manufacturing plant for PCBs is a very high cost investment, and that is very hard to make given the uncertainty what the tariffs are. Today today, we don’t see any signs of investments being done to build manufacturing neither in Europe nor nor in North America.

Gunilla Oman, Head of Investor Relations, NCAB Group: Okay. The last question here is from Filbert, and he is asking regarding US. What proportion of order could you ship from outside China for The US market?

Peter Crook, CEO, NCAB Group: I mean, this is a little bit sort of I mean, theoretically, we could ship % from outside China. I mean, given our our factory base to to our US customers. Then, of course, still Chinese suppliers are very good at what they do. They’ve been highly specialized and invested in this for a long period of time. There are some technologies and some partners that even with a higher tariff cost, they would not wanna change because it is a critical component.

But I think we we have the factory portfolio there to support customers to have a significantly higher degree of sourcing outside China than what they even currently have. I mean, our group sourcing from China at the time of our IPO in 2018, we were at 95% sourcing in China. I think end of twenty four, we for the year ’24, we were at 72 or 73%. So it has shrunk as a whole, and US, as we said, is just below 50% last year. But we can expect with the current climate that that that share of sourcing in The U in in Mainland China will continue to decline.

Gunilla Oman, Head of Investor Relations, NCAB Group: Okay. Thank you. So so that was the last question written question. So I’ll just remind you that our annual general meeting will be the May 8, and you’re very welcome to attend. So thank you everyone for today.

Peter Crook, CEO, NCAB Group: Thank you very much. Thank you.

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