Kitron ASA

OSE:KIT

Earnings Call Transcript 2022-Q2

[Lars Nilsson, executive]

Welcome to Kitron's Second Quarter 2022 and Half Year Report. I'm Peter Nelson, CEO of the Kitron Group. And joining me today is Ms. Cathrin Nylander, CFO. [Operator Instructions].

So let's kick off the review. Some of the highlights in the quarter. Revenue in the quarter was record high, reaching close to NOK 1.6 billion, with a growth of close to 60% compared to the previous year. The SEK 1.6 billion of sales generated over NOK 100 million in operating profits. EBIT margins showed a strong improvement compared to the first quarter 2022, but continue to be under pressure from cost increases and some inefficiencies driven by uneven incoming supply chain.

Order levels continue very strong for '22 and 2023. This has led to an increase of inventories and effective cash flow. We expect the reduction of net working capital as a percentage of revenue as improvement programs deliver further efficiencies.

Next slide, please, slide 3. Taking a look at the marketed operations. As I said, demand continues to be very strong in all market sectors. The main drivers are market sectors, Connectivity, Electrification and Industry. The expected improvements in the component market deliveries over the rest of the year have led to a more favorable outlook on the introduction and ramp-up of several projects within power grid technology, e-mobility solutions, energy storage, heating and ventilation solutions and smart home technologies. Currently, the top 10 customers measured as forward-looking 12 months demand amount to NOK 3 billion. On average, their growth is over 50% year-on-year.

Now I'd like to turn the mic over to Cathrin Nylander, CFO. Next slide, please, Slide 4.

[Cathrin Nylander, executive]

Thank you, Peter. And now to the revenue. In summary, A sad in total for the quarter, we had a growth of 9%. The growth like-for-like as if we had owned BB last year as well is 28% and the organic growth part too. However, if we compare to last quarter, which makes more sense, we haven't -- revenue is up 11%, with a growth of over 20% for connectivity and medical devices and just under 20% for industry. Connectivity in the industry currently are the distinctly larger sectors and strong growing. We have grown more than we expected in the first half of 2022.

For Electrification, we have supply interruptions on some larger programs that have affected the quarter. Medical Devices are normally quite stable volumes. The increase in the quarter is some catching up on deliveries. Defense, which is quite slow moving in that sense, has some development is the result of some supply-related difficulties, which we hope to soon have cleared out.

Slide 5, please. Business sectors. BB, our recent acquisition, has delivered revenue, profits and profit margin higher than planned. They have strong growing customers and have been able to source the necessary material to deliver on the growth. So revenue grew 11% from last quarter. All business sectors had good growth, 7% in the Nordics, 10% in CEE and 17% in the rest of the world, which contains U.S. and China.

The EBIT margin compared to last quarter increased to 6.3% from 5.5% last quarter. EBIT margin for the Nordics ended at 6.4%, down from 6.7% last quarter. This mainly a result of some disruptions in supply chain. CEE ended at 7.5% EBIT margin, a good improvement from 6.6% last quarter. The rest of the world improved to 6.6% from 5.3% last quarter.

Energy cost and some currency has affected the results in the quarter, but has been partly compensated for by price increases. I also have to say that we had a strong finish to the quarter improving month by month.

In summary, the EBIT margin has improved from preceding quarters, but still affected by cost increases and efficiencies. As for the employees, in total, 2,812, is up some 24 employees from last quarter. We see a buildup particularly in the CEE in preparation of the fall. I also have to comment that a number of FDs are adjusted continuously based on the load of the facilities.

Slide 6, please. Cash flow and net working capital. Although net working capital has increased in the quarter, operating cash flow ended at a positive NOK 21.7 million compared to a positive NOK 109 million last year. Compared to previous quarters, it's a stabilization. Further improvements are expected as improvement programs deliver on advancements in supply chain, resource management, cash and deliverables. The buildup of working capital due to delays in material have, to a larger extent, been compensated for by customer deposits and consigned material by the customers. As mentioned, in addition to the inventory we carry in our books out of our books, we are carrying several hundred and million of inventory for customers.

Finally, the acquisition of BB was finalized very early in January. Net payment was NOK 878 million, partially financed by the share issue made in late December 2021 of NOK 340 million and the remainder loan, which is NOK 500 million, a term loan in euro over 5 years.

Next, Slide 7, please. Ratios, positive development in the key ratios. The 3 main capital efficiency ratios, net working capital as a percentage of sales, return on operating capital and cash conversion cycle, see improvement in last 3 quarters, although there is a decline compared to the comparable period last year, which was the last quarter before the material allocation really started to show. Net interest bearing debt or EBITDA increased to 3.6 from 1.7 same quarter last year and slightly up from 3.5 last quarter. The net debt ended at NOK 1.768 million, up from NOK 1.613 million last quarter. The net debt development follows the increase in EBITDA, and hence, the ratio has been fairly stable.

Equity as a percentage at 24%, affected by the net working capital development. And just as a reminder, we had the share capital issue in Q4, and we had the acquisition of BB in Q1. So it increased the balance sheet in Q1.

Covenants in Kitron are now based on loan-to-value and net interest per debt over EBITDA. Finally, earnings per share increased compared to last year, an increase of 22% in the quarter and 8% year-to-date. Next slide, please, Slide 8 and over to you, Peter.

[Lars Nilsson, executive]

Thank you, Cathrin. Before we review the outlook, I'd like to again remind you about the Q&A session just right after this next section. So go ahead and post any questions you may have. Now let's start with the customer demand outlook and order backlog, So next slide, Slide 9, please.

To give a more complete development over the next 12 months, let's review the outlook from 2 angles. First, we have a 12-month forward-looking customer demand. As lead times are extended in the market, it's more relevant to look at the R12 to understand the trends for the immediate future. As you can see, the 12-month forward-looking customer demand is NOK 7.1 billion, with a growth of 80%.

On a pro forma basis, like-for-like, the projected growth is 33%. Secondly, the order backlog containing all firm orders, but only the first 4 months of customer forecast grows from NOK 2.3 billion to NOK 4.9 billion, a growth of more than a 100%. Many of you are interested in how defense and aerospace is developing. Let me tell you, many customers want deliveries as soon as possible. In fact, several are prepared to take the entire order book immediately.

We're comfortable in raising our growth outlook from previous annual growth rate of about 5% to 15% for existing programs. In addition, we're working on several new opportunities. This 15% annual growth rate is not for next year or -- it's the annual growth rate for the coming 5 years. That's our best current review and outlook.

Next slide, please, slide 10, the outlook. Well, the supply chain delays have improved during the second quarter, contributing to our record revenues and our positive margin trend compared to the first quarter. We expect continued improvement over the rest of the year, leading to a more favorable outlook on several product introductions and ramp-ups. For 2022, we previously indicated a revenue of between NOK 5.2 billion and NOK 5.8 billion and an operating profit between NOK 330 million and NOK 430 million. Now entering the second half of 2022, we see strong demand from customers and continued ease of supply constraints. Profitability is improving compared to the first quarter when -- where -- when rapid cost increases challenged us. We, therefore, raised our revenue outlook to between NOK 5.7 billion and NOK 6.1 billion.

Operating profit is expected to be between NOK 330 million and NOK 400 million.

Next slide, please. Some of the key takeaways. Well, customers continue to communicate growth for 2022 and throughout 2025. The net -- the order backlog and the 12-month forward-looking demand supports continued strong growth. In addition, new programs are being introduced to solidify and increase opportunities within strategic market sectors. The revenue outlook has increased.

Next slide, please, Slide 12. So again, reminding you to put any questions into the Q&A section, and we're going to wait for about a minute here to make sure that the questions come through. Cathrin, as we wait for the questions to come in, you've been leading much of the integration work between the original Kitron Group and BB Electronics.

[Cathrin Nylander, executive]

Yes, I've been working on the phase -- the first phase, yes, which is a lot about integrating the bank facilities, insurance, reporting, also sustainability actions, making sure that we're aligned because we will be talking about that as a group for next year. And we see some effects of that already.

In addition, there is work going on between the supply chain and sales, Where we're working -- where they've been working on the same type of procedures with the customers and customer processes and also aligning on the supply chain contracts that we have. Unfortunately, the lead times are very, very long. So I think they're still working out their old contracts basically.

[Lars Nilsson, executive]

We're not seeing the savings realizing yet?

[Cathrin Nylander, executive]

No, we can't see them realize because of that.

[Lars Nilsson, executive]

Okay. Well, let's jump into some questions. The first 1 is we think [indiscernible]. What are our thoughts when it comes to the share buyback?

[Cathrin Nylander, executive]

Well, I think we have to be in a lot stronger cash position to start with that basically. We're now at a net interest-bearing debt over EBITDA and 3.5 where the bank wants us to be over longer term. we have a higher covenant right now. So I think we need to have a stronger cash position before we can think about those things basically. And our target over time is to be below 2.5 at least.

I can take the next one. Carl Jørgen Flaen. Are there any one-offs included in the other losses of Item NOK 9 million in the P&L. The NOK 9 million is all revaluation effects that has been done in the quarter. Normally, over a year, they go a bit up and down in the quarter and this one is the result of the strong change or late change in the dollar in the quarter. They normally reverse. And like last year, we had in total about NOK 3 million at the end of the year. So it's revaluation of balance sheet typically. So there is no one-off that is sort of a one cost. That it's more of a reversible item, I would say.

Peter?

[Lars Nilsson, executive]

Question we have here is on the Defense sector as our current growth in this sector, and how do margins compare to the group average? And what is Kitron's global market share in this sector? And what is the competitive environment of this sector? That's a lot of questions. But let's just say that normally, where -- the growth rate that we've been expecting is around 3% to 5%.

That's been our normal growth rate year-over-year. Then between quarters, it tends to vary a lot because many of these defense orders are project related for specific markets, for specific customers. So it's seldom an even flow. Most even flow we have probably is on some of the Aerospace programs where there's a build schedule for many, many years.

So from that point of view, I'll just answer the way I did during the presentation, 3% to 5% is our normal expectation. We're raising it now to about 15% year-over-year for the coming years.

Our global market share is tiny and barely measurable. If we're talking about the NOK 1 billion that we have in the rolling 12 demand outlook right now, that's barely measurable when you look at the global part. But when you look at regional, I'd say, we're the #1 player in Sweden. We're the #1 player in Norway. So meaning we have somewhere north of 70% of available market from the customers. That's my best guess really.

What is the current footprint utilization? How does that vary between region? We currently have pretty good utilization. We have some spare capacity in China. We have added additional footprint to be able to take care very quickly and grow. So there's some footprint available there. We have the new site that we put in place in Poland still under ramp-up. So when you walk into it, you'd probably only see about 30% utilization. But all that capacity is booked up for the next 9 to 12 months. That site will be completely full. We're full basically at all the other sites. All other sites are looking for how do we increase efficiency and footprint efficiency, meaning how do we redesign production flows and work with automation and things like that to be able to get even more revenue out per square meter.

And I think when I look at the industry average here, there are averages for small companies and medium-sized companies and large companies. And in this context, Kitron is a medium-sized company. On invoicing per square meter, we are well above the industry standard. So we are already efficient, but I believe we can do a lot more.

Any update on European expansion -- capacity expansion plans earmarked for '23 to '24, size and estimated cost? Yes, we're probably going to double our site in Poland. Decisions to be made during -- beginning probably of next year to be able to get that capacity in place by late '23, early '24. It's probably 8,500 square meters additional footprint. The estimated cost, what do we think? It's the hardware that goes into the factory really. Since this is a leased facility, the new lease will come in on top of the existing one. So -- and we have competitive rates on our lease costs. So -- but -- so the cost for it will be what we normally invest in line with revenue, right? We don't have any spare equipment sitting around at any point in time. So we continuously invest.

We don't speak publicly so much about every individual investment we do, but it's 2% to 3% per year of top line.

Are we experiencing any challenges in the recruiting process? If so, in which region? What's the wage inflation currently? I think the wages are okay in the Nordics. The contracts and agreements are negotiated more on an annual or biannual basis. So it's more or less under control. Costs are increasing in Central Eastern Europe definitely as many others are attesting. We've tried to not be the leader in increasing those costs. So I think we're fairly modest compared to many other industries, especially the OEMs. The EMSs try to be more cost cautious. So I'd say, it's different by nation.

Looking at the Baltics, Though there is a huge wage inflation. But -- and I don't want to speak to exactly how much we're raising our salaries. We're below market, significantly below market.

Let's move on to Frank. To what extent was the recent USD strengthening played a role in our outlook update? Cathrin, what do you think? It's now something we've...

[Cathrin Nylander, executive]

No, not very much actually. It's not the major point in the update. Yes, there is some currency calculations in there, but it's not.

[Lars Nilsson, executive]

The data is from early June where we really had the rate on the dollar towards the end of June and beginning of July. So yes, I mean if you want, you could consider that to be an upside. On the other hand, who's to say where the dollar versus NOK or dollar versus euro will be in Q3 and Q4. So I think we always try to take the conservative approach on currency development.

You see expect improved profitability in the second half, still, you lower the EBIT outlook midpoint. Can you help us understand the mechanism here? Well, I'd say -- I'd like to say that the first quarter was not a lost quarter, but we underperformed according to our expectations in the first quarter. Very rapid cost increases. Usually, we compensate then raise our prices once per quarter. We did that in the beginning of January, and then the costs ran away from us during January with a lot of energy cost increases in the beginning of the quarter and then other costs starting to take off.

Now all of that was reviewed again and implemented in April. And now, again, we've done the same thing for July. So that lost earnings in Q1 pressures us for the rest of the year.

[Cathrin Nylander, executive]

So our planned EBIT margin for the mid guidance for H2 is higher than the EBIT margin that is for the first half? Or high?

[Lars Nilsson, executive]

We have believed the same question from Morten also can you elaborate by 2022 guide on the EBIT is lower. I think there was a lot of optimism when the target was set for or the top end of that EBIT guidance. And the market has not supported. And then we come to -- Peter, so Peter, you have a short memory, can you tell me the difference between like-for-like and organic?

Well, organic would be just Kitron. just Kitron year-over-year. Like-for-like is the pro forma with had we done the acquisition a year earlier, that would be like-for-like. So I hope that clears it up.

And then there is just where we are today. So usually, the highest growth or the highest something will be where we are today. Organic will be lower, like-for-like will be in between when you look at key ratios.

Backlog, how long is the duration of the majority on the order backlog? And has that changed since first quarter of 2022? There's been some change on it. Some of the big customers that have had difficulty during the first and second quarter on supply chain have tried to secure by placing orders for the full year next year. Previously, they would have had orders for maybe 4 to 5 months and then forecast for another 12 months on top of that, bringing the total window to about 18 months. Now they're trying to keep a window between, let's say 18 and 24 months. right? That's where they try to keep their window.

Not that they place orders for 24 months out, but some of the big customers have placed orders for the next 18 months. So yes, that drives it a little bit. But it's fairly -- those numbers we see anyway in our forecast. So I feel pretty comfortable with it.

How should we view the total demand, backlog and revenue recognition compared to each other, and what segments contribute to the total demand? Well, the total demand is what our customers are telling us for the next 12 or 24 months. That includes all forecast on top of whatever they have on order. So when we talk about total demand, it's limited for the next 12 months. It's not beyond that. So we're looking for sort of a rolling year forward. In that is past due or replanned backlog, not as a big lump sum, but as material becomes available. So which means we could have things that we didn't deliver in the second quarter, but they've been replanned to Q4 next year, theoretically possible. So it's not like we're pushing a big mountain ahead of us, tried to put a schedule in place, which reflects where we think the component market is going.

What segments contribute to the growth? I spoke to that earlier in the presentation. So far this year, if we look at what we've done in the first half of the year, Connectivity most definitely is the big driver. Why? Because Connectivity traditionally has several product life cycles a year. It tends to be more modern equipment. It tends to be more modern components. It's easier to source. It's easier to redesign the product for whatever parts are available and the most difficult products to do that with are Defence/Aerospace and Medical because of certifications and lengthy validation of those products. So usually, you don't even do redesign or you do it when you have to, absolutely have to.

Going -- looking at the next 12 months, Electrification is going to be a big driver, as is Industry, Industry driven by automation and some smart home technology, other type of sustainable products that supports sustainable energy as well as, within Electrification, the power grid products is loosening up on the supply chain part, those will be introduced. We're already now into the third round of prototyping on e-mobility solutions. That will ramp up in the -- during the third and fourth quarter and go into real high volume next year.

I think I touched upon those things so... Working capital. How do you -- you talk about improvements expected in the second half? Are you talking about relative to sales or in absolute figures? Will you talk on that Cathrin a little bit.

[Cathrin Nylander, executive]

I would say definitely in relative compared to sales, and we're working hard to get it down too. But the first absolutely and the second, hopefully.

[Lars Nilsson, executive]

And the probably -- it's not a problem, right? But the challenge is, there's growth, right? So growth is driving more material, more components coming in. So we need to be sort of balance that all the time. And then there's the guidance and the midpoint EBIT. And there's a question, is this because of lower gross margin from buying components in the spot market. There's a bit of that going on, right? But primarily, I'd say, a big difference has been on -- from Q1. There is a bit of conservative outlook also in regards to what you're talking about with price increases and spot market buys where margins tend to be much lower than normal.

When do we expect to be below 2.5x on net interest-bearing debt over EBITDA?

[Cathrin Nylander, executive]

So not to expect exactly, but I would say second half next year.

[Lars Nilsson, executive]

We'll hold you to that. That's been documented now.

[Cathrin Nylander, executive]

Yes. Strangle me to the wall.

[Lars Nilsson, executive]

And then finally, if all plants are at full capacity that you can deliver over time, what is the revenue potential in the existing footprint? I think we've answered this question many times before. We've said that all of our sites can deliver EUR 100 million, not so probably in the Czech Republic, that site is too small, as is the site in Denmark. So -- but I think we've said that we have capacity for our strategic plan, the issue becomes where do the customers want to be, right? They may not necessarily want to grow where we have capacity.

So we're extending some capacity now. As I said, we're extended in Poland. We're even -- we're starting to offer India through the facility we put together with BB earlier this year. So it's a small startup still. There's still no production going on there and not any cost to speak of either. But it's getting ready to roll out and grow also.

So we'll expand capacity where needed, right? And we do that continuously. But we're probably going to be where we are. And over the next 24 months, I don't see us going into a region or a place where we're not based today.

We have about an hour's worth of questions here today.

[Cathrin Nylander, executive]

Yes. That's good.

[Lars Nilsson, executive]

Good to hear from Johannes, the supply issues are issuing your guidance on EBIT margin is around 6%. What should we think about the path going into 2023? I say, I mean, not going to swear on anything, but I'm not happy until we're somewhere between 7% and 8%. I see the potential for that. I see many of our companies delivering in that region today or above. And then we have some stragglers that are not performing to that level, and we need to make sure that we can get them there also.

In order to meet order backlog, are you considering increasing production lines? Well, yes. I mean we're talking -- we do that continuously. We -- there'll be another couple of lines over the next 18 months and installed into Poland over the next 6 months, probably. There'll be 1 more line installed there. In the Nordics, it will be more of increasing the shifts. We still have available shifts in the Nordics, or putting 1 or more machines into an existing line, thereby, increasing capacity also. So again, it's all part of investment versus revenue, the 2% to 3% that we normally do.

Ben asks about our outlook for EBIT is unchanged in bias despite higher growth. Can you disclose the margin drivers for this year?

[Cathrin Nylander, executive]

So Peter, when we've been through almost every EMS company, and we're struggling a bit. Everybody is about a percentage lower than they were expecting or have been before, and so are we. And I think the major point here is the inefficiency that we suffer from basically when we can't steer the production the way we want. When it comes to -- that's basically a comparison to last year. But if you look into the general going forward, we should see slightly less inefficiencies in the second half than in the first half.

And also, we have increased LNG costs and some currency divisions, which we think that we will have. Probably the energy cost, we think, will stay in our expectations when we're going into second half of this year. And then we have some currency deviations. We think that they will probably end up slightly more positive than in the first half.

[Lars Nilsson, executive]

And then what's our 5-year revenue growth target?

[Cathrin Nylander, executive]

No, we never ever said it. So...

[Lars Nilsson, executive]

I can't repeat because we've never said it.

[Cathrin Nylander, executive]

No. We have always talked about the 10% annual growth. And we will come back to the more certain numbers when we see the outcome of this year and how we will be managing. And the demand is there, definitely, and we hope to be able to deliver on it going forward.

[Lars Nilsson, executive]

Vincent has several questions.

[Cathrin Nylander, executive]

Yes. I think I answered the first 1 now before.

[Lars Nilsson, executive]

And then the strong outlook on Defence/Aerospace, what's the impact on profitability due to mix? What can one expect? And usually, we're a couple of percentage points higher. Basically, all defense/ Aerospace is in our Nordics, either Denmark, Sweden or Norway. So that will be a strong contributing factor to success for those facilities. And they're running a little bit lower than the others right now. So I don't want to get into details here.

Energy cost in percentage of sales last year, and what was it in Q2 2022? Where do you use natural gas?

[Cathrin Nylander, executive]

Not so much natural gas. I would say the energy costs in China and in the U.S. have not changed that much, first of all. So where we've had energy cost changes have been in Sweden, Norway, Lithuania and Poland and some in Czech, not so much. And if we start with Sweden, I don't -- I'm not going to give a number. But if I look into rent and facility costs that we have basically include the expenses for energy, it's about 0.9% last year and this year, too. So they're about the same. So they haven't changed that much, but top line has increased as well. But we use -- in Sweden and in Denmark, we have district heating, which helps with the cost in total. And I don't know that we use any natural gas of any scale at all, honestly.

[Lars Nilsson, executive]

I think the biggest has been in Norway. And after that, we thought -- it will be Lithuania and Poland. But then we have the numbers reported by site. It's just we don't have them in front of us now and it's...

Finally, with third price hikes beginning of July. I mean, I don't want to talk about price hikes, right? We review the cost and we review the price every quarter, and we've always done that. So some products theoretically could be cheaper, lower price, some will go up. Most likely, most will go up now. Do you think offset negative cumulative effect of price inflation for 2022? I mean, I'd like to do that, but it's a matter of negotiation with customers also. So every cost -- we have open book policy so every cost has to be proven.

Bobby asked us to comment on 2022 margin. I think we've commented on the EBIT margin there and margin improvements for 2023 from the Defense industry. Yes, we expect that. I'm not going to talk about specifics more broadly. There seems to be positive trends in the short term. What keeps you up at night? What developments could significantly affect 2023 and beyond in a negative way? Not much keeps me up at night. I sleep like a baby for at least 4 or 5 hours. But what do we think about, what we think about -- what's happening with interest rates?

How is that going to -- help me, how does that affect the general economy? What is the ECB going to do? There's a lot of speculation ECB is not going to let the economy crash in Europe. They're not going to increase interest rates as rapidly as maybe some of the Nordic countries have done. And we'll see what happens on that. But that's a concern how interest rates will affect investments in general in Europe.

Remember, even if a lot of the products we build are business to business, many of those businesses are small businesses. And they don't do well with high interest. So that's a concern. We don't see much of it now, but it could be something that trends in. I think we have so many opportunities when we look at next year that we're not too concerned even if something turns south in the general economy. So we still think we're well positioned to grow within those market sectors that I've spoken about.

Okay. Let me see. I formalize -- do you evaluate M&A, do you say something about multiples at the moment? Have multiples come down? We've seen a couple of deals go through.

[Cathrin Nylander, executive]

Some large one, too.

[Lars Nilsson, executive]

Yes. So the GPV annex, which is one of the bigger deals with you did about NOK 1.8 billion or so. I don't think so, there was a euro value. Think about NOK 60 million in cash and NOK 120 million in equity. So that was a big one. I'm not sure what the multiples were on that. I mean, I've calculated that myself. They looked -- to what extent I know I thought they looked reasonable.

I would expect some multiples to come down, especially on small acquisitions because smaller companies now, they are struggling when it comes to carrying a lot of inventory and customers may be pressuring them on payment terms and other things like that. So on the small side, on the sell side, there's a lot of small stuff out there. And we're not really that interested in that. So I've looked at probably 2 dozen deals over the past 4 months. Much of it is too small for us to get involved with. So we continuously look at it.

When our expectations on net working capital when we normalize? I think you addressed that, Cathrin. Split a bit Any more dividend this year? No, there's-- we paid dividend already this year. There was only 1 dividend payment.

[Cathrin Nylander, executive]

not, this year. We had 2 around the year before. Again, the same answer. We are at net interest-bearing debt or EBITDA, 3.5%, we want to grow. So we need to make sure that we gain as much cash as we can in the company in the next 6 months, so, makes sense.

[Lars Nilsson, executive]

I mean it's put to the general assembly in April each year, right? We won Only 1 decision points, though.

[Cathrin Nylander, executive]

Or we can have [indiscernible] but it's not the time and the moment for it.

[Lars Nilsson, executive]

So do we expect margins to be -- to continue to improve, and we expect them to be steady going into 2023 despite higher growth? Yes, I expect them to improve. Yes, I expect them to be steady and continue to improve into 2023. Are there risks? Probably, right? When you grow -- are we able to keep control? Are we able to execute every plan on time?

And I specifically am speaking about the Polish facility, where we will see tremendous growth over the next 36 months. So -- but we have a really, really strong team there. They're allowed to add more to their team if they want to, if they need to. And we are -- and we've done that for the first 6 months, thereof, a lower profitability the Polish site than the budget. And I'm perfectly okay with that because this is an investment into next year.

So yes, -- the answer is yes, I expect profits to improve and profitability to improve.

Emma says congrats to the great Q2. How much are you growing versus competition? And who do you see as your strongest competitor in the Nordics? I did a pretty substantial review of basically all listed EMS companies that I can find, and I don't know if there was many. And I'd say the growth was -- varies between negative growth, to growth of 50% or so with acquisitions. Organic, it seems to be somewhere around 20% growth. Again, some of that growth or a lot of that growth, depending on who the competitor is, is maybe due to a lot of spot buys. So increased material prices so -- which has driven down margins. And we saw that in the first quarter.

It will be interesting to see. I think we're 1 of the first out to report this quarter -- and for the second quarter, and it'll be interesting to see what the competition are doing.

Who is our strongest competitor? [indiscernible]. Zollner, privately held German company. K-TAC, listed in Germany. Those are some of the ones we meet on the typical size of contracts that we quote on.

[Cathrin Nylander, executive]

We could add Texas and Fideltronik, too..

[Lars Nilsson, executive]

Yes, American Texas and Polish Fideltronik. So all really good companies. Yes. And then that was that one. Can you break down like-for-like growth in volume and price/x?

[Cathrin Nylander, executive]

Yes, that means that they would like to see what is price increases when you add BB into the expectation for last year. We have not done that. And -- but I can tell you that BB is growing in volume for sure. It's not a price discussion.

[Lars Nilsson, executive]

Really i know. We're extremely happy with the acquisition. And then, finally, from [indiscernible], last question, I think, did you reschedule the Capital Markets Day? Well, we did push it out. We have not set the new date for it.

[Cathrin Nylander, executive]

No. I mean coming into the fall, we will look into and see whether it's relevant to have it in the fall or in the next March, depending on how -- how can we say it, how volatile the market is coming into September, October. We remember last year, it was a pure havoc in the marketplace after summer. If we see that things are firming up, then we probably try to do it before Christmas, I think. But if not, we will wait until next year.

[Lars Nilsson, executive]

I think we'll be open all the time, our communication.

[Cathrin Nylander, executive]

Yes.

[Lars Nilsson, executive]

Very good. But it would be interesting to share some new targets on a 5-year outlook, goals for 2025, things like that, that still are a little bit fluid, not that we see any weakening at all. But fluid, so we need to decide on exactly what our target should be. And -- how does that sit with capacity? And do we need to formulate expansion plans, things like that, that have changed since earlier this year.

Very good. Thank you all. I think our questions are all set. And hopefully, we'll come back here in the third quarter. Final question from Naveen. Is there any focus on ESG factors within the total business segment?

[Cathrin Nylander, executive]

What's -- ESG?

[Lars Nilsson, executive]

Yes. there any focus on us on the ESG front?

[Cathrin Nylander, executive]

I mean ESG, yes, of course, the environment.

[Lars Nilsson, executive]

You're talking about maybe the EU nomenclature in that?

[Cathrin Nylander, executive]

There are several aspects of this. Of course, we are focusing. There is a quite strong demand from the customers to have their own requirements pushed down on suppliers like Kitron. So we're working hard on, for instance, the CO2, but also on very many different aspects of the whole ESG setting that we need to have fulfilled by our customers. And we can say that the growth in the electrification sector is extremely hard on life cycle assessments, on CO2, et cetera, which is going to be the focus for the future, I think, in general.

And what we do as well, I think you're looking into the taxonomy as well, the taxonomy is based on the customer end products. So it's basically what customers we have and what type of products we sell. And currently, our taxonomy, we have -- we're aligned at around 20% to 23% last year. I think it's going to end up at 19%, 20% end of 2022, I think so.

Yes, there is a lot of focus. There's a lot of different types of requisitions or requirements that we need to fulfill, and we are also doing so. So we have a score on the equates, a Silver score. We're working hard to get it on the gold level. We are in the wash nomenclature. And yes, so I would say that we are doing a lot of work in this area. But we have to remember that we did a lot of work on it before as well because we were ISO 14001 certified, and we have been sorting everything that we've been doing in our facilities, et cetera. So many of these things are not new. And we're -- but we're happy to work with, and I'm happy to work with our customers fulfilling those requirements, I have to say.

[Lars Nilsson, executive]

With those final words, thanks for being with us today, and we'll be on the Q3 webcast.

Thank you so much.