NCAB Group AB (publ) (NCAB) Earnings Call Transcript & Summary

Welcome to the NCAB Q3 presentation for 2025. [Operator Instructions] Now I will hand the conference over to the CEO, Peter Kruk; CFO, Timothy Benjamin; and Head of Investor Relations, Gunilla Ohman. Please go ahead.

Good morning, everyone, and welcome to today's Q3 report. So, presenting will be primarily myself and my colleague, Timothy Benjamin, and also Gunilla will be supporting us. NCAB, for those who are new, we are focused on printed circuit boards, the bare boards that you see to the left in this picture, and that basically is the foundation in any electronic intelligent product. And what is a little bit particular about our industry is that while semiconductor components are standard components, the printed circuit boards are a unique design for every single product. So, it's a highly engineered product where we work closely with our customers in defining the designs. We are a company, we're believing in strong local presence. We are present through 19 companies across the world, serving some 50 markets, and we are around 650 colleagues within the Group. We don't have any in-house production. We are only working with outside manufacturing partners, but we're heavily invested in the production process and securing quality and sustainability in our supplies. So, out of our 650 colleagues, we have around 120 people working worldwide with our factory management and technology areas. We strive to be #1 wherever we are, and we are the globally leading supplier of printed circuit boards today. The company; beyond focusing on demanding customers, where we can help them solve potential problems. We are also directing our focus on high mix, low volume segments of the market. So we are not in the high-volume consumer electronic products, but typically more in industrial applications. And these might still be very large global companies. But again, for them, the printed circuit board is a small part of the overall bill of material. They have very high quality demands typically. But given the fact that it's a high mix, low-volume business and for them, even though they may be large companies, their total spend in printed circuit boards is still quite minor. And that creates a lot of problems. They will struggle to have enough internal competence to work with printed circuit boards as well as getting the right attention from the leading factories. And that is where we can help them both by providing competence and guidance in the design phase. But also matching their needs in factories where we buy combining all the spend of our customers are in a very attractive position with the leading factories. We have had a couple of years been -- we as a company operating 30 years long with a strong growth history. It was an extreme growth period from the year 2000 up until 2022. And then we've seen a global decline in the market, and we are happy to see that, that market is now starting to resume growth again as we can see in our rolling 12-month revenue chart here as well. As a company, we have quite a diversified portfolio of customer segments we are serving. So the biggest part is in industrial, which, of course, is covering a lot of different applications. But we also have strong positions in medical, automotive, power and green tech as well as defense and telecom. And over the years, we've seen sort of these segments countercyclical to some extent, which has helped us be resilient in challenging times. Manufacturing of printed circuit boards globally is dominated by Asia and China. And we have been sort of, as a company, also working to broaden our supply portfolio to be able to offer our customers good alternatives in terms of not only technology, but also in terms of geopolitical exposure. At the time of our listing in 2018, we at that time had 95% of our sourcing coming from China. And end of last year, we are around 75%. So, there's been a migration and the portfolio we have in predominantly other parts of Asia could offer a significant portion to cover the Chinese current spend. Here, it's always a dialogue with our customers whether or not they want to make a change or not. And still, China is a very strong supplier of printed circuit boards. And therefore, for many of our customers, they are happy to stay with China. So moving in then to our third quarter. So we are positive to see a gradual improvement in our order intake and revenue. And if we look year-on-year, we can see that our order intake continues to strengthen with very strong numbers versus what was a very quite weak second half of last year. So our overall growth in order intake is 21% in U.S. dollars, which is our main trading currency. And excluding M&A effects, we are at 14% organic growth in order intake. And as before, it's North America and East that is leading the charge. Europe is following. And Nordics is actually quite okay. It looks -- this year, it will have a comparable where Q3, we booked some larger defense orders, which distort the trend a little bit. But also in Nordics, the development is favorable underneath. We can see positive development across several sectors, and we see it continuing in areas like aerospace and defense, but also medical and energy are areas where we see growth. Net sales are kind of following on the coattails of the order intake. We see in our numbers in the reported Swedish number, of course, the strong FX headwind from the softer dollar. But we're seeing growth in all of our regions in U.S. dollars now, and we also see overall organic growth in U.S. dollars. So this is a quite nice trend that we've seen. Strongest growth here as well is in North America. Here, we get some support additionally from the tariffs. We don't book tariffs into order intake as we don't know what the tariff level will be as we book the order, but we only see that when we do the deliveries. But even beyond that, we see good growth in the other regions. And the impact of the U.S. dollar decline versus last year has an impact on our net sales of SEK 75 million. EBITDA improves sequentially from quarter 2, and our cash flow is strong. We are up slightly in gross margin versus quarter 2. And with a better margin volume, we also see the EBITDA rise versus last quarter. Again, here, the FX effect on the EBITDA is around SEK 15 million that we would have seen as a higher number in comparison with prior year. And again, good cash conversion on the EBITDA, but also there has been improvements in working capital during the quarter, which has helped generate a strong cash flow. So if we look upon the numbers in more specifics, you can see that the order intake in Swedish krona is up 11% to SEK 985 million versus SEK 887 million last year. So, 21% in dollars and 14% organic growth in dollars and the book-to-bill still positive with 1.04. Net sales are up 6% to SEK 949 million versus SEK 898 million last year. Overall 15% growth in dollars and here also organically 8% growth. EBITDA is down from SEK 118 million last year to SEK 110 million, providing us with a margin of 11.6%. So the gross margin is down versus last year, but it's improving sequentially with previous quarters. And again, the net impact of FX here is SEK 15 million. And operating cash flow, as I mentioned, quite strong at SEK 180 million on par with last year and working capital has come down from SEK 9.2 million in quarter 2 to SEK 7.9 million, slightly above last year, but that's predominantly associated with the acquisitions that have been done during the year. And net profit at SEK 60.9 million versus SEK 50 million last year and EPS of SEK 0.33 versus SEK 0.27. Tim, over to you.

Thanks, Peter. So, I think you heard a little bit from Peter that we have a good top line this quarter with net sales at SEK 949 million, an increase of 6% versus this time last year. When we look at it in U.S. dollars, USD 99 million, up 15% versus this time last year. And then we also have EBITDA coming in at SEK 110 million, while down 7%, I would say, important to remember that there's a large FX impact there of minus SEK 15 million. So that's one of the contributors that you see there with the EBITDA margin at 11.6%, which is 1.6 percentage points down versus last year. When we look at the gross margin, this is the second quarter in a row where we are increasing the gross profit margin, now up to 35.2% on a last 12-month basis and starting to come back in line with where we've been. When we look at the total top line, though, order intake up 11%. But as you heard from Peter, up 14% in U.S. dollars, when we start to exclude the currency impact. I think the thing that was nice to see is that we had positive developments in pretty much all segments. North America was up double digits as was Eastern Europe. Nordics was stable in U.S. dollars, but you'll hear a little bit more from us, that has to do more with timing of large orders in the prior year than anything else. Net sales up to SEK 949 million, which is 8% up in U.S. dollars in comparable units. And we still have a positive book-to-bill of 1.04, and we see a lot of good progress with customers in the energy and medical sectors globally. You heard a little bit from Peter that the EBITDA decreased versus prior year. But again, all of that was due to FX impacting us with SEK 15 million. Gross margins, as said, quite stable versus prior quarters. And when we really start to look into last year versus this quarter, a lot of that has to do with product mix in the different countries where we operate anyways. I think also interesting to note that the acquired companies dilute the gross margin a little bit compared to this time last year, and that's something that we work on in the medium term with them to improve. I think when we dive into the details of the FX impact, I think it's interesting to remember where the U.S. dollar was this time last year. It was all the way up at SEK 10.42, and they continue to climb actually when you start to look at quarter 4 and quarter 1. But right now, we're down to SEK 9.52 on average for this quarter. I think as of right now, closer to SEK 9.4. And what that leads to then, as you can see on the right, is that we have a revenue impact of around minus SEK 75 million coming from the U.S. dollar translating to less krone. That leads, of course, to a gross profit impact as well, which is generally margin neutral. The only thing that does impact margin, a small amount, is that revaluation line that you see there when we revalue our balance sheet, specifically accounts payables and accounts receivables, otherwise, generally margin neutral. We also have SG&A or operating costs in currencies such as the U.S. dollar, but we also have it very much in SEK, euro, GBP, among others. And there, we get a little bit of an offset against the FX impact. So the total net impact from currency is about SEK 15 million. Over to you, Peter.

Okay. So looking a bit closer at the different segments. So, we can see that Nordics order intake coming down by 9% versus last year, but this is in relation to a very large orders being booked during quarter 3 of last year of longer digestion. So overall, underlying, I think there's still continuing a positive development, and we can see notably Denmark and Finland developing well in areas of the energy sector. Net sales remaining flat in Swedish krona. However, that, of course, strong or good solid growth given that our sales is predominantly in dollars. So in dollars, we are growing nicely also in Nordics on the revenue side. EBITDA amounted to SEK 25.2 million versus SEK 26.3 million and the margin came down slightly to 12.4%. We still see some of the FX impacts as well as the customer product mix having some impact on the EBITDA in the Nordics. Moving to Europe. It's possible to see that also Europe now, we start to see Europe who has been the laggard in terms of sales development. We've seen the order intake increasing by 18% here, of course, supported also by the acquisitions. So the organic growth in U.S. dollar is still a good 13% up, and we can see positive trends in Spain, Benelux, Italy and Germany when it comes to order intake. Net sales are up 7% to SEK 464 million versus SEK 435 million last year. And organically, we can see in U.S. dollars, the revenue remains stable and SEK slightly down or down by 8%. Automotive is for us showing a negative trend, but we're seeing recovery in other areas. And the automotive business is predominantly related to the truck and bus industry. EBITDA decreased versus prior year to SEK 45.6 million versus SEK 57.6 million and corresponds to an EBITA margin of 9.8%, which is down from 13.2% last year, but sequentially improving from quarter 2. And we still also here see negative impact from the mix and FX. North America is where we've seen very strong development on the order intake in the quarter. We're up 20% in Swedish krona, and it's good progress with the new product introduction model we have, which came in partly through the company Phase 3 acquisition, which we're extending. We see good growth in defense, power as well as medtech sectors. Net sales are up around 9% versus -- to SEK 225 million and 19% up in U.S. dollar. And here, there is an impact also positively contributing from the revenue -- from the tariff side. And we can also see that the trend of lowering the share of products sourced from China is decreasing. Last year, we were just below 50% in sourcing from China for the U.S. market, and that number is continuing to trend down. EBITDA increased versus last year and increased to SEK 34.6 million versus SEK 31.7 million and the margin was stable at 15.4%. Looking at our East segment, we can see that our order intake is up 14% to SEK 59 million versus SEK 52 million. The order intake in U.S. dollars was up 25%. And I think we've been able to capitalize on growth in high tech, and we are leveraging our supply base in this area. I think a number of, say, local companies in Asia have been struggling to get attention from high-tech factories as some of them are getting full with orders from AI applications. Then again, our relationship with the factories is giving the opportunities to win with new business. Net sales increased 4% to SEK 58 million versus SEK 56 million and our revenue in U.S. dollars increased by 13%. So our EBITDA is up to SEK 9.5 million versus SEK 8.2 million and the margin at 16.4% versus 14.6% last year. And I think we're also here focusing as before, very much on high-tech niches, and we can leverage some of our global relationships as well to win more business in the region. Back to you, Tim.

Thank you. So, return on equity for the quarter at around 14% versus 21% this time last year. That very much has to do with a very stable equity and then earnings that's down a bit when you look at the last 12 months earnings. Net debt still at a very good level of 1.6, and that is very supportive of what we'd like to do on the M&A agenda. Equity asset ratio quite stable at 41%. And net working capital in absolute terms more than prior year, much as you heard from Peter, we have acquisitions in that time frame, and we've acquired working capital there. And then the working capital percentage itself is down relative to where we were in quarter 2, but slightly up versus this time last year, again due to those acquisitions. And available liquidity quite good at SEK 1.4 billion. Back to you, Peter.

Yes. So, I mean, we continue focused on the M&A side of our business activities. We have no new M&A announced here during this quarter. The one we did earlier this year was B&B Leiterplattenservice in Germany. But I think we are -- we have a good strong balance sheet. We have made some reinforcements to our team during the year, and we continue diligently with building our pipeline as well as entertaining a number of interesting discussions. So we hope to continue to add good companies to our portfolio and hope to do so in the not-too-distant future. We'll see how things progress. Looking overall at our strategy, it remains stable focused. We are focusing on printed circuit boards 100% and also retaining an asset-light model where we do not invest in having in-house manufacturing. It gives us the flexibility to always provide the best solutions for our customers and also to be flexible to match geographical sourcing needs as well as different technology needs. So instead, we are investing still in the cooperation with our factories and in our own technology development and our services so that we can continuously improve the support for our customers and grow our market shares in the existing markets. Geographical expansion remains high on our agenda. There are areas where we are expanding. So the acquisition of B&B, even though you could argue that we are present in Germany since quite some time, this gives us a very strong local presence in the eastern part of Germany. And there are further geographical expansion, which we were looking to do across the world. And here, we believe M&A is a good way of doing this to enter and start to get a good foothold in a new market. And then also, as we mentioned before, the printed circuit board market and the trading market is still a highly fragmented market as manufacturing moved predominantly from Europe and North America to Asia the last, say, 20, 30 years, in its wake arose a large number of smaller trading companies and many of these are struggling to be able to support their customers in a good way in terms of both technology requirements, quality requirements as well as sustainability. And many of these companies are also now starting to come close to a succession situation. So, there's an opportunity which we are exploring to consolidate the market predominantly in Europe and North America, but there are also things starting to arise in Asia in this area. With that, I think we leave it open for questions.

[Operator Instructions] The next question comes from Jacob Edler from Danske Bank.

Congrats on a strong quarter. Just starting a bit on Europe and specifically the coloring on Germany and Italy, it's gone from signs of being a positive development in Q2 to now clear signs of growth. Do you feel that there is a clear delta here in the demand from customers sequentially in these 2 countries specifically?

I would still say that part of the European market are not yet in a strong growth mode. So, I think we have seen, as you mentioned, Germany and Italy being markets that have been trending weak and have been quite weak, say, during the first half of this year. But I think maybe we are starting to see some positive signs. I would not yet say that the German market is growing strongly. I think we're all expecting that potentially going forward, we could see positive effects of the, say, the new government and the higher degrees of investments. But I think that is something we're not yet seeing, I think. But I think there is still a small rebound from a low level.

Okay. Great. And then another question on Europe. U.K. is the market where you highlight the demand situation hasn't improved. Is that related mainly to your truck exposure there? Or any more flavor to add there?

I would say it's a combination. I think the U.K. economy itself is challenged overall. But I think as you know, as you mentioned as well, we have our main automotive exposure through our U.K. business. And therefore, also the fact that, say, the truck industry is slowing down predominantly also for the North American side of business also impacts our business in the U.K.

Yes. And then just hopping over a bit to the U.S. I mean, when you look at the EBITDA margins, but also the orders, it's been very strong in North America this quarter. Is there any effect that you can see that there's some kind of pull forward demand effect here ahead of potential tariffs? I don't know what's happening. He's changing his mind in the U.S. every day, but anything you can see there in terms of pull-forward demand ahead of potential tariff hikes, I don't know?

I don't think we're not seeing any clear signs like this. I think overall, I mean maybe we had a little bit -- I mean, also internally, we -- I mean, we are rolling out a new business platform across the Group. I think for the North America, that had maybe a slight impact on our Q2 at the end because we went live in June and maybe we had a little bit of carryover to July. But overall, otherwise, I'd say it's a continuous improvement. I think the strong growth numbers versus last year is also partly reflective of actually that our order intake in Q3 last year was a little bit weak on the weak side in the U.S. But also, if you look progressively versus Q2, it is a strong quarter for us. So...

Yes. Great. And then my second last question is just when I try to count backwards and on the M&A contribution, it feels that DVS and the B&B are at a slightly lower revenue number compared to what they entered the Group at. Is that a fair conclusion? And is that in that case, partially explained by, for example, DVS automotive truck exposure? Or do you agree with that conclusion, so to speak?

Yes. I think it's a fair conclusion. I think the numbers we presented on that [indiscernible] was also sort of historical data from '23. So, I think the general market decline in '24 has, of course, also impacted these companies. So that's a fair interpretation, yes. It does not change our view on these companies in the longer-term perspective. And as we start to see now in Italy also starting to move a little bit in the right direction, it will also impact our DVS business.

Perfect. Just a last question then coming back to the U.S. But on margins, it's been hopping around a bit all over the place here in the last couple of quarters. And this quarter, we have a bit stronger margins. Is that partially also a bit more favorable mix than we saw, for example, in, let's say, Q1? And when we look ahead, should we expect it to still be a bit lumpy between the quarters?

I think if we look back, I mean, we had a weak Q1, but that was also related to actually quite significantly lower sales. So, I think we were at SEK 187 million in sales in Q1, and now we are at SEK 225 million. So, a lot of that was volume driven. But there can, of course, also be some mixes in terms of gross margin depending on bigger projects, which can have different margins. But otherwise, if you look back, we have been quite stable around 15% in the North American business with the exception of Q1 this year.

The next question comes from Gustav Bernebled from Nordea.

It's Gustav here from Nordea. Maybe to start off here on the IT platform. Maybe if you can just help us here where you sort of rolled it out this quarter and where you expect costs to be ahead there?

No, I would say for this quarter, we were fairly stable. We were finishing the U.S., as you heard from Peter, at the end of last quarter, and we've been doing a lot of prework even if there's a bit of a summer period here, there's still a lot of intense prework for doing Norway and Sweden later this year. Later next year, we'll do France and Spain and then China in the second half of the year. So our expectations here is that we keep a fairly stable cost for this program through at least the back half of next year. And then we could see some trailing off of cost in the back half of next year, but China is a complicated country with all the legal requirements to do. So that's roughly what we're expecting.

And is it possible to say if the majority of this quarter was negatively impacting in North America specifically? Or how should we look at it?

For the IT cost itself?

Yes.

No, I wouldn't say that. I wouldn't say that.

We never mix [ the activities ] . You may have, say, kind of hyper care after just after going live, which, of course, is -- that was predominantly versus North America. But at the same time, you're preparing for the next rollout and the development work or adaptations to meet the legal requirements in those countries. So, it is kind of spread between different regions there.

That's quite true. There was quite a bit of local work and adaptation to make the system work in the quarter in the Americas, but yes.

Can you just elaborate a bit on what you are actually doing with the IT platform and why it is sort of taking so long and driving so high costs? It would be very helpful.

I mean we are having a quite integrated business model where we are both buying and selling as well as we are configuring products. So it is an advanced model where we want to be able to provide good service for our customers as well as handling the technical configuration design options. What we're doing is that we are now implementing the program country by country. So we're setting it up. And so it follows a rollout program where we during last year, okay, we started with the first pilot company being the U.K. end of '23. And then we went live with 5 entities during 2024. And for each country that you enter, you need to sort of review -- we are checking, say what -- are there any specific customer requirements that we need to adapt to and fulfill if we have, say, certain consignment stock solutions or specific business needs that we need to cater for in the new system. But predominantly, it's also adapting to legal and financial reporting requirements in the different countries. And that requires both the adaptation. And then, of course, you have a training activity, transfer of all the data because we're migrating all the running business from our old system into the new system. So you have a lot of that data migration of live orders, which is kind of activity consuming.

Okay. That's very clear. And I mean, now when you have sort of implemented it in several regions almost a year back, I mean, can you say anything about sort of the payback time you've seen? Or can you say anything about what we should expect going forward?

I think for us right now, I think the main driver is to get on to the common platform. We've chosen to go with say, vanilla functionality, a starting point to secure a smooth transition. Then we have to remember that our old systems have been systems that we have had for some 15, 20 years where you have done a lot of local adaptations and tweaks. So those kind of tweaks will not be there from the start, but are being added in. And of course, we have a lot better opportunities in our platform, both for automation -- we're starting to see areas where this is already starting to flow through. But also the biggest benefit is the ability and availability of the data we have. I mean no one does more business transactions than we do in this industry. And we have a unique opportunity of leveraging that data. That was historically quite tricky for us because we have different systems and data in different pools, which made it hard for our people to really access the full group know-how when quoting new projects. Now with this platform and potentially also with the use of AI on top of it, we can leverage that strength even more. So, these are things that's going to gradually come into play. I mean we are shifting from -- during -- when we're going live with the U.S. this summer, we've now passed the 50% border of implementations. I think we're right now around 60%, and we aim to be around 3/4 at year-end. So, the importance now of ramping up the functionality and leveraging the investment is growing. So we'll see that grow during '26 and during '27 onwards.

That's very clear. Should we expect these type of costs also throughout -- you said China was going to go live in late next year. So should we expect then sort of evenly at around SEK 8 million for every quarter during 2026.

I would expect pretty stable costs from what you've seen over the past couple of quarters continuing into at least the first half of next year. And then it just really depends on how complicated China is. It could trail off a little bit in the second half or it could remain a little bit stable. We'll know more once we really get into the pre-study of China.

Okay. Perfect. And then just, sorry, the last one here, if we then move to orders and the dynamics in the order backlog. Can you just comment a bit on how much you expect to deliver during 2026 and '27, what we can consider sort of a backlog today?

I mean we don't give long-term forecast. But I mean, during the last few quarters, we have had a positive book-to-bill. And so there is a, building up of an order backlog for us, which is positive. But I cannot quantify what those numbers will be in '26 and '27 by then.

The next question comes from Thomas Blikstad from Pareto Securities.

Strong numbers in North America here. I understand that the order intake was not affected by tariff increases. But does this mean minimal impact from tariffs on top line in the segment in Q4?

We don't give guidance for Q4 per se. If you look at Q3 and Q2, however, we were pretty stable.

Okay. But is it possible to sort of...

And maybe just right now, there's no change to the tariff per se. So, I mean right now, we have seen impact from the added tariff versus last year in both Q2 and Q3. And if nothing changes, we will still continue to see contribution from tariffs in Q4 as well. But the fact that we're not booking it into our orders is that we cannot -- we don't know if tariffs would change we will only know what the tariff is actually when we bring the products into the U.S. And therefore, we are not reporting it as part of our order intake right now. You will see deviation or gap between order intake and revenue.

Perfect. And is it possible to sort of try to quantify the underlying growth in North America without these impacts from tariffs this quarter?

It's a bit lower, but we don't publish those numbers on the tariffs exactly.

[Operator Instructions] There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments. The next question comes from Gustav Berneblad from Nordea.

Yes. Sorry, just one last question here. When you sort of look at your operations today, would you say that sort of all risk -- I mean, obviously, we can't guide, but all risks you see now currently are in full effect with sort of tariffs, FX, IT platform, et cetera? Or do you see other risks ahead such as price pressure from factories or customers or higher freight rates? Or what's your view there?

I mean, right now, it is still a very uncertain economic environment we're operating in. And as we know, a few weeks back, the U.S. government announced potential new higher tariffs on China. So, it is still sort of volatile from that perspective. But I think we are in a situation where we are managing tariffs. We are running our IT program. And we've been -- it's also quite successful. I mean if we look upon the rollout we have had, every single rollout has gone to plan. So we don't foresee big risks in our continued business platform rollout. So in that perspective, I think it's fair that we think we have the current risk under good control. What may happen in geopolitics that we cannot speculate in. But I think for us, I think, our model overall has flexibility built into it. So we will be trying to sort of adapt to those new circumstances.

There are no more questions at this time. So, I hand the conference back to the speakers for any closing comments.

So there are no questions -- written questions either. So, I would like to thank you very much, Peter and Tim, and remind you that our Q4 and full year report will be published on 13 February '26. So welcome back. Thank you.

Thank you very much.

Thank you.