NCAB Group AB (publ)

STO:NCAB

Earnings Call Analysis

NCAB Q1 2024: Financial Resilience Amid Market Challenges

In Q1 2024, NCAB reported net sales of SEK 951 million, a 17% decline from the previous year but a 9% increase from Q4. The order intake was SEK 970 million, a 6% drop year-over-year but an 11% rise sequentially. Despite a 22% decrease in EBITDA to SEK 143 million, the EBITDA margin remained strong at 15%, buoyed by a high gross margin of 37.6%, up from 33.6%. Continued cost savings in logistics and purchasing, alongside stable operating cash flow, reflect NCAB's resilience. The proposed dividend is SEK 1.10 per share. Market demand is improving, especially in automotive, aerospace, and defense, with a positive book-to-bill ratio for the first time in a while.

Market Recovery Signals

The latest earnings call reflects a cautious optimism at NCAB, with a noted improvement in market demand. While the net sales for Q1 2024 decreased by 17% to SEK 951 million compared to the previous year, there were signs of stability, particularly a 9% increase from the previous quarter. The order intake, although down 6% year-on-year, showed a sequential increase of 11% from Q4, signaling the tail end of inventory adjustments among customers and a potential return to more normalized order patterns.

Strong EBITDA and Margins

Despite the drop in sales, NCAB successfully maintained an EBITDA margin of 15%, only slightly down from 16% in the same period last year. This resilience is attributed to a higher gross margin of 37.6%, compared to 33.6% the previous year, indicating effective cost management despite lower sales volumes. This indicates that while revenues are affected by market conditions, the profitability measures remain strong.

Sector Performance Insights

In specific sectors, NCAB observed positive developments, especially in automotive and aerospace, where business growth remained robust. The company announced a positive book-to-bill ratio of 1.2% for the first time in months, showcasing their ability to secure more orders than deliveries, a trend that could bode well for future revenues.

Acquisition Strategy and Growth Opportunities

NCAB's management spoke about a healthy pipeline for mergers and acquisitions, highlighting ongoing discussions with potential targets to expand their market footprint. They reported interest in about 300 companies within high-mix, low-volume PCB production, a niche that NCAB specializes in. This focus on strategic acquisitions could enhance their competitive positioning and contribute to revenue growth as the market improves.

Future Guidance and Market Outlook

While stable revenue performance is expected through the first half of 2024, management is optimistic about a stronger recovery in the second half. They believe there might be a return to organic growth around Q3, depending on broader market recovery trends. The focus remains on securing a strong operational footing and capitalizing on emerging market demands, particularly as signs of recovery surface in the U.S. and other regions.

Challenges and Cautions

Nevertheless, NCAB remains cautious given the backdrop of potential price adjustments due to increasing factory utilization and rising commodity prices. The management asserted that while their capital structure remains robust with low net debt against EBITDA, they are mindful of adjusting market conditions and pricing pressures within the PCB industry, especially as they navigate ongoing bankruptcies among certain manufacturers.

Conclusion

In summary, NCAB is navigating a recovery phase characterized by improved orders and stable EBITDA margins, while strategically positioning itself for future growth through acquisitions and operational excellence. Investors may find the focus on high-tech applications and the management's proactive approach to addressing market conditions promising, as they aim to cement their leadership in the PCB sector.

Earnings Call Transcript 2024-Q1

[Operator]

Welcome to the NCAB Q1 presentation for 2024. [Operator Instructions]. Now I will hand the conference over to the CEO, Peter Kruk; CFO, Anders Forsen and Head of Investor Relations, Gunilla Ohman. Please go ahead.

[Peter Kruk, executive]

Thank you. Good morning. My name is Peter Kruk, and my colleague, Anders Forsen here, will go through the presentation of our first quarter 2024. If we start with the first summary of key takeaways. We can see we have solid financials and growth in orders. We can note that the market demand is improving. Our order intake improved over the previous quarters, and we show growth in all segments except east. We can see that the customer inventory adjustments that has plagued or impacted our order intake in the last several quarters is appearing to slow down. And we now start to see a pickup in recurring orders, and our book-to-bill is now greater than 1. We see continued good performance in automotive as well as in aerospace and defense and a strong growth in versus 2023 new part numbers and new customers on overall. We are also proud about the good results. We've been able to maintain good gross margins and a strong EBITDA margin despite the lower sales, purchasing logistics cost savings have helped us safeguard our gross profit, which helps to offset the lower sales compared to 2023. We continue to work in a positive M&A climate, and there's a lot of activity in this field. We have several active discussions and our pipeline is also continuing to grow, and we concluded one minor acquisition in Belgium here in the beginning of April. And finally, we have also concluded our recruitment process to find a successor for Anders Forsen. And this person, Tim Benjamin, will join us here after the summer, latest in October. If we look upon the quarter in numbers, we can see that still compared to last year, our net sales is decreasing by 17% to SEK 951 million compared to SEK 146 million in 2023. That is an organic decline of 24% in both Swedish kroner and U.S. dollars. However, it's an increase in net sales of 9% versus Q4. Order intake decreased by 6% to SEK 970 million compared to SEK 1,030 billion, and our order intake, however, increased by 11% versus Q4. EBITDA amounted to SEK 143 million, which is a decrease by 22%. However, we maintained a strong EBITDA margin of 15%, down 1 point from 16% in 2023 despite the lower sales. And the big help from this is coming from our gross margin where we've been able to continue at a high level of 37.6%, which is up from 33.6% in last year. Continue to have a good operating cash flow at more but more normalized now at SEK 96 million versus SEK 201 million last year. During last year, we were in the process of reducing our working capital, which helped to boost our working capital in that or our cash flow in that quarter. So, our working capital now is stable, but also stable on a low level of 6.4%. And we have a proposed dividend of SEK 1.10 per share, which is the same as we had in last year. Overall, describing NCAB, we are a company present working with the local presence, both on our sales side as well as with our factories. We are a company focused on supplying PCBs for demanding customers, delivering on time with 0 defects, produced sustainably at the lowest overall total cost. We have the vision to be #1 PCB producer wherever we are, and we are already globally the leading player in our organization, in our field. We have some 607 specialists in our company. We work with some main 32 factories. We have no in-house production, but have a very strong focus on production technology and are very much involved together with our factories. What we do is printed circuit boards that you see to the far left here, and that is the foundation in all electronic products where our customers would unmount semiconductors, microprocessors to create the intelligent modules in any intelligent product. Very important to remember is that all PCBs are unique. They are customer and product unique, so there are no standard components that you find in other areas of electronics. Our focus on demanding customers is also then coupled with a focus on looking at high mixed, low-volume market segments. So, we are not involved in high-volume consumer products like mobile phones or PCs. Instead, our customers, we typically find in industrial applications where generally the printed circuit board is a very small part of the bill of material. However, there are very high demands on quality and technology. Even if many of those customers are globally leading players in their industries, they are still not large consumers of printed circuit ports, and that makes it hard for them to have both internal resources and know-how around PCBs and also to get access to the best factories. And we can add a lot of value for these customers, and it also creates an environment where there is less price pressure than if we would be in the high-volume segments. We are providing reliable PCBs and peace of mind for our customers. Through our customer-facing presence with local companies, where we have PCB and application technology know-how. We can help our customers optimize their design and also secure a smooth process with a short time to market. By leveraging our global technology organization as well as our factory management, we can continuously develop and secure leadership in technology, quality and sustainability. Specifically, our factory management team plays a key role in developing our partner factories and also to handle difficult market conditions to secure safe supply to our customers. This is a global organization consisting of some 109 employees, mainly located in China and Taiwan. And that gives us an opportunity to have leading product quality, delivery performance and customer support, something we very much get constant evidence of when we make acquisitions and we can then compare exactly our performance with other players in the industry. Over the years, we are working with a lot of different industries, and we have also developed specialized know-how around these industries and the requirements that we are needed to serve them in a successful way. Anders?

[Anders Forsén, executive]

Thank you, Peter. I will start with a little bit of a brief history of NCAB. You might remember this that the company started 1993, 31 years ago, very much focused on the Nordic countries in the beginning. In 2007, the founders of the company sold the company to Capital Fund. And then we started to grow much more outside Nordic and set up physician companies in Germany, Poland, U.K., France, et cetera. In 2012, we made the first acquisition in U.S.A. to enter that market, and we did the second one in USA 2014 with [ MA ]. 2018 then we made the IPO 6 years ago. And after that, we have continued to strengthen our organic growth as well as the acquisitive group, and we have done 156 acquisitions since the IPO. And that has been a very good part in our growth story, of course. NCAB has growth all year except 2009 and 2023. 2009 had a financial crisis and 2023, we all know about the weaker market. Normally, we can see that the market picks up rather rapidly when the demand started to increase again. Let's see change picture and then look into first quarter, where we, as Peter said before, and the date revenue of NOK 951 million, which is 17% below last year, and for comparable campus 24% down. We have to remember here that the first quarter 2023, we still had a higher price level. So, we could see that in the order intake, first quarter '23, prices were starting to go down, but revenue still based on orders placed 2022. So, we had approximately maybe 10% higher pricing in the first quarter than we have right now. We have the EBITDA is down 22%. And we also made a few acquisitions in the second quarter. So now we are more people than we were 1 year ago. So that also explains why the EBITDA is a bit lower. Still, we're very proud of the EBITDA margin of 15%. And of course, we have sales to guard at a lot with the gross margin that have increased, which means that even if you have 70% down in revenue, only gross profit is down only 8%, which then is shown on this slide. And you can see that we have had a rather stable gross margin of just above 30%. It went down a little bit 2021 due to 2 bigger acquisitions, but then we see a rapid growth in '23, very much connected to the price decrease we have seen in the factories in Asia.So, we have been able to lower prices for customers but even lower price even more from the factories. So of course, this has supported our profitability going forward. Looking into the net sales and order intake, we have talked about the numbers. I think what is important to note is even if we see order intake below last year, we have looked at the blue line, we saw that the order intake was about SEK 925 million in second quarter, SEK 925 million in the third quarter and just below SEK 900 million in the fourth quarter, and now we are on SEK 970 million. So, we can see that if we compare the order intake versus the last 3 quarters, we see a positive trend. And we can see a lot of customers now talking about the head on the destocking, and we see more bigger orders coming in, we see an increase in new part numbers. So, there are a number of positive signs here. And finally, this is the first quarter in a long time that we have a positive book-to-bill, even if it's just 1.2%, but it's still positive. And I think we have been resilient in our EBITDA margin. Even if we have lower revenue, we have been able to keep 15% EBITDA margin for the first quarter. In general, we can see that our overall costs are in line with previous quarters. It is a little bit higher than first quarter, but we also have done a few acquisitions since then. We continue with our rollout of the new IT platform. We launched that in U.K. last year, and now we continue with further countries and that will have a running migration costs, roughly about SEK 10 million, which was almost in line with development costs over last year, and we will continue to roll out this new system during '24 and '25. As Peter said before, we are happy to see the increased gross margin up to 37.6%. And then yes, earnings per share compared to last year, is a bit down. Peter?

[Peter Kruk, executive]

If we move into the different segments, starting with the Nordics. We have made one update from 2024, and that is that we are now reporting Poland as part of Nordics, and that is also shown in the tables and the data we provide, but it's been updated transactively. And the reason we're doing this is that there is a lot of interaction between Nordics and Poland. We have several customers where they have production sites also in Poland. And therefore, there's a lot of interaction that makes a lot more sense for us to serve our customers in a good way to manage this as one segment. If we look at the numbers, we can see that our order intake decreased to some 11% to SEK 234 million, which is also the same decrease in U.S. dollars. However, we are showing double-digit growth numbers in both versus Q3 and Q4. And we can see aerospace and defense performing particularly well, but also good stability performance in the EV segment. Net sales amounted to SEK 260 million, which is a decrease of 25% versus last year and almost the same 24% in U.S. dollars, but the revenue has been fairly stable now since the last couple of quarters. EBITDA amounted to SEK 41.4 million versus SEK 59.2 million, but still a good EBITDA margin of 19.2% versus 20.7% in 2023. Looking at Europe, we can also see here year-over-year decreasing sales of net 23% to SEK 503 million. For comparable units, it's a decrease of 27% in Swedish kronor or 26% in U.S. dollars. Order intake reached SEK 488 million. So we still have a slight negative book-to-bill in European segment, but we can see that our order intake is growing versus Q4. German market still is weak in the European segment. However, we see more positivity in other markets and a good positive development in our Automotive business and also in aerospace, where we're winning several new projects. EBITDA decreased to SEK 76.6 million versus SEK 96.7 million. However, there's an improving EBITDA margin up to 15.2% versus 14.9% last year. Moving to North America. We can see our order intake amounting to SEK 199 million, up from SEK 170 million. Here, we need to factor in the fact that Phase III is now in the numbers and they joined NCAB in mid-Q2 last year. So, if we look upon comparable units, our order intake decreased still by 17%. But however, we continue to see a growing trend in order intake from both Q3 and Q4 as both we are making good progress, but also more positive market conditions. Net sales increased by 20% to SEK 191 million. Net sales, however, for comparable units decreased by 60% in both Swedish kroner and U.S. dollars. EBITDA reached SEK 24.7 million versus SEK 26.2 million, and we still have a healthy EBITDA margin of 13% versus 16.5%. And here, we need to factor in what Anders mentioned that in the U.S. numbers, even if they are higher revenue versus last year, we now also have added Phase III into this. So, there is a decline in sales that we are offsetting in the business and still maintaining a good margin. Looking at East, this is the market where maybe we have continued to see also challenging market conditions. However, there is an increase in customer activity levels. And even if net sales were low, our book-to-bill was positive at 1.18. Our order intake decreased versus last year. Net sales decreased to SEK 41 million versus SEK 52 million. And we've seen also that there have been extended closures around the Chinese New Year in quarter 1 here, which also has impacted both orders and sales numbers. EBITDA decreased to SEK 6.1 million, but still a healthy EBITDA margin of 15.1%.

[Anders Forsén, executive]

Thank you, Peter. We reported a return on equity of 26.3%, a little bit lower than last year, but mainly due to that we have more equity and a higher solvency than 1 year ago. I think still, we show a very positive and strong balance sheet. Our net debt is stable with last year and 0.7% net debt versus EBITDA. As we said before, strong solvency and we have been working a lot during last year with reducing our net working capital, looking into making sure that customers pay on time, making sure that we have reducing our inventory level and so on.You can see that net working capital is down from SEK 440 million last year to SEK 312 million. We believe now that we are back to a stable level, and we estimate that our net working capital versus net sales last 12 months would be around 6%, 6.5%. This also means that we have over SEK 1.1 billion in availability liquidity. So, we have still strong possibilities for continued growth and acquisition activities. And going into acquisition activities, we continue to search for new possibilities in new companies. We have, as we maybe talked about last quarter as well, started to look more into the East region into Southeast Asia and into Japan. So, we have added on approximately 50 companies on the identified company list. So, we see now around 300 potential companies working with some kind of PCB trading. For us, it's, of course, very important that they are in the high mix low-volume segment. They should have the right customer focusing on demanding customers, no own production, of course, and we are only looking for profitable companies. On the short list, we have about 50 companies. And you can see below the number we have done here in '23 and '24. And I think, as Peter said before, we are in a number of good discussions. It's always difficult to say when they should close, it takes more time than you think sometimes. But I think that the market is rather bright. And then we also have a number of cases where we couldn't agree on valuation 1 year ago when the is now coming back to us. So, I think that the current market situation is in our favor for that. So, we look positively on the opportunities. Peter?

[Peter Kruk, executive]

And then if we look upon our overall strategy, I mean, NCAB is operating in a global market for PCBs amounting to around $80 billion. And what we define as the high mixed low-volume target market is around $25 billion. So, we are a leading player in a very fragmented market where we have a lot of opportunities for growth. So, our focus will remain 100% focused on PCBs and driving this business with an asset-light model. We continue to invest in technology and capabilities to increase our market shares and also invest in sales resources in new markets. We are looking to expand continuously globally, both strengthening our position in regions where we already have a presence like adding Belgium to our Benelux activities. And M&A can play an important part in making this expansion. Overall, it is also very fragmented. A lot of companies will start up like NCAB in the 90s or 2000, early 2000s as production moved from Europe and North America. Many of these are smaller companies successful in the regional areas, but maybe not lacking some capability to grow and we're also now facing more demands in terms of both quality, technology and sustainability, which is hard for them to gross by their own. So, it's a good opportunity for us to bring them into the NCAB family and consolidate the market. And with that, we close our presentation.

[Operator]

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

[Jacob Edler, analyst]

I have a couple of questions. To start with, it's well noted that Germany has lagged behind. It's well noted that Germany lags behind some other markets, but you state that the trends in order intake improved during the course of Q1. Are you able to provide any flavor, for instance, how much better March was relative to January? And also, any comments on how April has started thus far? That's my first question.

[Peter Kruk, executive]

I think development has been stable in the quarter. You have some seasonality effects with Chinese New Year and things and Easter, of course. But overall, there's a good stable development within the quarter. We will not comment right now on Q2. But overall, it's a positive development. And you can also see in Germany some progress from Q4 to Q1.

[Jacob Edler, analyst]

Second question on capacity utilization. You said that, that also improved gradually during Q1. Should we expect factories to start becoming more price competitive now? And will that be an effect already being seen here in the coming Q2 or coming quarters or rather something to be seen in H2? What are your best guesses there?

[Peter Kruk, executive]

I think as you said, I mean, we are seeing signs that the market demand is increasing not just from our own order intake, but we can also see that the factory utilization is going up. I think after Chinese New Year, interest or orders picked up the factories in general. And I think their loading situation is now in a better state than what it was earlier. That combined also with the fact that we can see some raw material commodities starting to move upward, I think means that if anything is going to happen to pricing going forward, we may expect prices start moving maybe backwards at some point.

[Anders Forsén, executive]

I think you're looking into the Q1 numbers, we are very much in a stable price yes, both in revenue and order intake versus end of '23.

[Peter Kruk, executive]

That is correct.

[Jacob Edler, analyst]

And any flavors there, just more flavor on China, a bit of a delayed demand recovery. I believe in Q4, you stated that Asia as a region was flattening out or even improving slightly. Is there anything important to note here on China? Or is it mostly related to the Chinese New Year being a bit more, I don't know, dramatic this year or something like that?

[Peter Kruk, executive]

I think there is still a lot of uncertainty in the Chinese market. I think service industries do better than industrial production. So, we see popular, I guess now we saw some new industrial production data from China for Q1, which is coming out slightly more positive. I think the start of Q1 was quite weak. And I think therefore[Audio Gap] holidays or closures. I think what we've seen after Chinese New Year has been more positive in China.

[Jacob Edler, analyst]

And then just also on Nordics, the order intake stands out as quite strong. Do you expect the demand trends in some of these customer segments, for instance, defense Aerospace to continue during the course of the year? Or are there any temporary strength effects to be aware of here in Q1?

[Peter Kruk, executive]

It's hard to judge whether or not the growth will continue at the pace is doing right now, but it's not related to specific onetime projects.

[Jacob Edler, analyst]

And just the last question. Given the current conditions, you state that this could support a strong H2 here. Would it be feasible to expect organic growth returning somewhere around Q3? Or would that be too early? What do you think?

[Peter Kruk, executive]

I think it's a little bit still sort of early days to make solid predictions. I think it is very much the same view we have taken and seen in the latter half of last year where we could see things flattening out at the second half of 2023. We were expecting to see gradual progress in H1, not no really super strong rebound, but it take some signs of progress in H1 and then maybe more of a robust growth in the second half. Nothing has really changed.

[Operator]

The next question comes from Johan Skoglund from DNB Markets.

[Johan Skoglund, analyst]

I think you wrote a quite clear report. So only a few clarifying questions for me then. So, the first one is on orders where comparable units in dollars is down 14% year-over-year. Did you say price, I think Q1 were down around 10% because it so it seems like volume is only down 2% year-over-year. And along the right track here? Or am I missing something?

[Peter Kruk, executive]

No, I think it was more related on the sales side. In the sales numbers, we started to see order price downs on orders in the second half of 2022. But still on the deliveries in Q1 of 2023, that we're still very much to say, free price down pricing. So, the price downs effects on revenue is starting to show maybe a little bit in Q1 last year, but primarily from Q2 onwards. So, on the order side, then there is not much of a big price difference.

[Anders Forsén, executive]

It is also because we had a gradual price reduction during both first and second quarter and the prices flattened up, I think, in third quarter yes. So still, there are lower prices in order intake now than 1 year ago. But the main impact is on the revenues is almost everything was delivered with the old higher prices.

[Johan Skoglund, analyst]

And a follow-up question on the earlier question on Easter and Chinese New Year. Is it possible to quantify that effect in SEC? Or could you elaborate on that, please?

[Peter Kruk, executive]

It's a bit challenging. I think normally, you would have that the fact that would close for roughly a week. And I think this year, we've maybe seen them close, many of them closing roughly more like 2 weeks' time.

[Johan Skoglund, analyst]

And then a final question on the pipeline. I know you pointed towards a number of current M&A discussions. But would you say your appetite during this year is as large as last year?

[Anders Forsén, executive]

Yes, I will take it. Absolutely, yes.

[Operator]

The next question comes from Anders Ekblom from Nordea.

[Anders Ekblom, analyst]

Most has been asked already, but I have just 2 or 3 quick follow-up questions. In terms of the commentary around you saying that some customers that have not been placing orders for a long time now actually returning. I mean is it possible to say anything here? Is this linked to certain end markets or regions and the EMS versus OEM split?

[Peter Kruk, executive]

I think this is actually say we can't relate it to certain industries nor specific regions. I think we see it here and there. So it's more customer specific. I mean we have been on a journey where our own working capital peaked in, say, maybe Q1, Q2 of 2022. And then ourselves, we worked down our working capital for the 5 quarters or so to get down to a really low good level at the end of '23. And we saw many of our customers maybe they were 6 months behind us or 6 to 9 months behind us in starting that kind of process. And I think for a long time, we've seen low orders from our customers during '23 as not only was demand lower in the global market, but also there was this work that they were doing going through their own inventory situation and maybe not only themselves but also their customers. Now we can see some of those customers who are ordering at a repeating repetitive level that maybe for some time, we're not ordering at all or very much, much less now starting to come back with more of these regular orders. So it's a positive sample that perspective. And I think we can see that they are therefore coming through their inventory adjustments. And we're also giving that verbal confirmation from them.

[Anders Ekblom, analyst]

Okay. Yes, that's clear. I was wondering, a bet on just more high-level with you moving a bit more towards high-tech applications. You've commented that this can limit the pressure on the gross margin. Is it possible to say anything regarding the margin difference here between high tech and more volume? And also how much more of this journey is possible to do?

[Peter Kruk, executive]

I think for sure, there is, of course, a margin difference if you're working with really complex leading technology because as you add a lot more value and you spend more engineering time with the customers also. But I think it's a natural progression. I think we've talked earlier that the pricing maybe on like-for-like technology, that might be slightly decreasing over longer periods of time as productivity gains make things more efficient. However, there's also a constant move to more sophisticated printed circuit board technologies to keep up with new microprocessor technology, et cetera. I think those things offset. And I think we work with customers generally who are leading companies in technology areas, and they have high demand. So, it's natural that we work with them and follow them into higher and higher technology.

[Anders Ekblom, analyst]

Right. I know we've been over this, but I just wanted to ask, based on us noting that we're seeing some more bankruptcies among certain manufacturers. And I mean, if you comment a bit just in general on the health of the PCB industry. Prices are being are stable, but putting this in context to the bankruptcies among manufacturers. What can you say here?

[Peter Kruk, executive]

Yes. I mean you're absolutely right. I think the manufacturing industry is financially strained. Many of them are making significant investments as the market was growing in '21, '22. And now they're in a situation with lower prices and excess capacity. And we have seen, I think we have noticed some 50 companies, manufacturers going bankrupt in quarter 1 alone, yet none of our factories. And I think it's, again, one of those areas where we can make a difference for our customers. With our factory management team on site and our close collaboration with the factories, we can secure that the fact that we are working with are in a healthy state that they are continuing to maintain their equipment that they are adhering to sort of control a material choice, et cetera. We have seen attempts where some factories might have tried to cut costs in some areas. And I think for our customers, we can provide them some sleep and by delivering them on time with a reliable quality. And that has been an increasing risk during '23 and maybe also now in '24, still that the manufacturers are under financial strain.

[Anders Ekblom, analyst]

Right. Just one final question. I think Jacob asked this already, but if we look about destocking coming to an end and that orders are up 11% sequentially. I think Germany was asked specifically, but just in a general sense across the divisions or segments, is it possible to give any flavor on how this has developed during the quarter if it was back end loaded and stronger towards the end or just a general reflection there?

[Peter Kruk, executive]

I would say there's no clear trend in the quarter, we can highlight. I think it's been a stable progression in the business.

[Anders Forsén, executive]

We can also say that the first quarter is a little bit tricky to estimate because you had the Chinese New Year, which has one impact in February. So, there are different sentiment in the quarter as well. So, they have different ups and downs, the different months. So, I think it's more correct to compare first quarter versus the latter quarter in '23.

[Operator]

The next question comes from Anders Rudolfsson from DNB Markets.

[Anders Rudolfsson, analyst]

And great to hear that you start to see some positive signs on the industry. And I have 2 questions. The first one is, we have listened into a number of reports so far in Q1, and there's actually quite a few companies talking about the Easter effect. Have you seen anything of that?

[Peter Kruk, executive]

I mean you could argue compared to last year, Easter was in Q2 and this year[Audio Gap][Technical Difficulty]

[Anders Rudolfsson, analyst]

Yes, I think it was Anders the last conference call, we were discussing the gross margin effect when the going up, when the capacity utilization in the fabrics in China is low, and now we're seeing a fantastic gross margin. Are we supposed to see the gross margin coming down now, coming quarters if the capacity comes up again?

[Anders Forsén, executive]

Yes, I think it depends a little bit what happens with the market prices and what happens in the factories. It might be, of course, if price is starting to go up, I don't know, 5%, 5% or whatever, I think it might be tricky for us to keep the 37%, 38% gross margin. But we have to see. I think we have in similar cases in the past, I think we had the financial crisis, we did is more or less the same kind of thing. We compensated the lower prices and revenue with higher gross margin, and then we managed to keep it. That was, of course, in the lower level. So, I think in some way, you need to follow the market and make sure that we are competitive to the other customers as well. So, I think our main focus is to secure a good progress in the gross profit. And then that might mathematically be a slightly lower gross margin going forward if price is going up.

[Anders Rudolfsson, analyst]

Right. And a follow-up on that one. You also mentioned last time that you could continue to keep the margin on a better level than before the crisis. Is that what we could expect as well? We start seeing it already, but you don't see any signs of people and customers trying to push prices down now.

[Anders Forsén, executive]

No. I think we can see that I'm quite sure that we will keep a higher gross margin than before the rise before '22. Then if we will keep this high level, it might be tricky maybe. But I'm quite sure that we will be on a new higher level than we were before 2023.

[Peter Kruk, executive]

And also one comment you asked if customers will ask you for price. And it's important to recognize that we are providing significant price downs to our customers in the current market already. But still being able to work with our supplier base and our economies of scale to offset that through cost savings.

[Anders Forsén, executive]

I think also another component is important is freight prices. And I think we have due to our size being able to keep very good track on the freight and also to reduce that compared to the past. And I think there was also an area where we can save cost and secure a higher gross margin going forward.

[Anders Rudolfsson, analyst]

On all the markets right now, where do you see the strongest demand?

[Peter Kruk, executive]

I think what we have seen is, I mean, when we saw the downturn, probably we saw the negative trends starting in the U.S. and maybe now U.S. is the region where we have the clearest rebound, and we now have several quarters in progression with growing order levels. So maybe U.S. is slightly leading the pack. And maybe Europe and China right now are a little bit at the end and order somewhere between.

[Operator]

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

[Gunilla Öhman, executive]

So, thank you very much for all good questions. We just want to remind you, we have our AGM in 2 weeks' time, the 8th of May, and our Q2 report is new on the 23rd of July. Thank you so much for today.