Nolato AB (publ)

Good afternoon and welcome to the presentation of Nolato's first quarter 2023. This is Krister Walkie speaking. I'm starting on page two in the presentation with the summary of the first quarter of Nolato Group. During the quarter, our sales amounted to just shy of 2.5 billion. which is a decrease of approximately 20% if we adjust for currency in comparison to the first quarter 2022. Below, we saw a strong growth for our business area medical solutions, but lower volumes within our integrated solutions business area. The operating profit EBITDA amounted to 193 million in comparison to 267 in the previous quarter. The cash flow amounted to negative 46 million because of an increased working capital requirement mainly within the integrated solutions business area. We have sustained a strong financial position enabling us to continue with acquisitions for building for the future. On the right part of the page, you will see a graph of our 20-year growth from a lot of group going in different phases. First, we were balancing the group and enabling us to have a three equal size business area. The second step was then balancing the business area integrated solution, building up our EMC business within that. And then over the last years, it's been growth across the different segments. Turning to page three, looking into the different three business areas we have. Medical solutions amount to 1.3 billion approximately, being grown steadily over the years. And within this business area, we work as a development and manufacturer of complex product systems. for the medical device industry, pharma industry, and diagnostics. Integrated solutions business area, it's design development manufacturer of advanced devices for the consumer electronics, as well as EMC thermal. Industrial solutions on the 740 million, working as development manufacturer of product systems for automotive, hygiene, packaging, garden forest and different industrial segments. Turning to page 4, medical solutions business area. On this slide you will see a graph of the 20-year development of this business area. It's been a long stable continuous growth. Approximately half of that growth is organic and approximately half is inorganic. a good continuous growth for the business area working with global expansions. If we turn to page five and look into the different product areas within medical solutions, we have in vitro diagnostics amounting to approximately 15% of the total business area. That is diagnostics products for testing things. You take your blood sample and then you test different things. Cardiology, approximately 8% of the business area sales. This is different things for pacemaker industry and different heart surgery and things like that. Then we have the pharma packaging, approximately 13% of the business area. This is the segment where we do liquid and solid packaging for drugs. This business area, or this segment is something that we entered into. We saw the development of drug delivery technology that was coming from both packaging side and the device side. Then we have the continence care business, and that's a different kind of high volume products for taking care of continence, incontinence problems in the body. We have the endoscopy and general surgery at approximately 22% of the business area. And then we have the drug delivery systems at approximately 14%. So those are then the auto-injectors, injection system, and so on to get the drugs into your body. If we turn to page six, looking into the first quarter for medical solutions, during the quarter, we saw a strong growth in most areas, giving us a total growth of 13% if we adjust for currency. We saw the IVD sector at the low unchanged level during the quarter. The margin ended up at 10.0% with the operating profit of 132 millions in the quarter. If we turn to page 7, looking into the integrated solutions business area, in this business area, We are expanding ourselves into new market segments and have been doing that for a period of time. And we have seen over the last years very strong growth for the BHP part of that business. Now we are in a different situation, enabling us to focus on growth in other areas. If we turn to page 8, looking into the different parts of the integrated solutions, On the left-hand side of this picture with the reds are the consumer electronic part of this business area. So here we are doing complex modules. We are doing different kinds of speakers. And then we have the BHP area, different kinds of in-over earphones, wearables and handheld well-being devices, and then smart home and home security. But up until now, the BHP has been growing for a long period of time, creating a situation where we are focusing very much on maintaining that growth and delivering to the customer. But now we are in a position where we can put more emphasis and grow in the other areas, creating a more stable business area long term. On the right-hand side of this picture, we see the EMC and thermal part of the business, where we are producing different kinds of materials and solutions in order to shield electromagnetic influences and taking care of heat distribution from electronic components. If we turn to page 9, focusing on the first quarter for integrated solutions, During this quarter, we saw a decrease of 66% adjusted for currency in the sales numbers. And we saw the consumer electronics volumes on the level that was previously announced. And the effect of the decrease is, of course, the change in sourcing strategy from the significant customer. but also lower total volumes for that customer due to the situation in Ukraine and Russia. On the other hand, EMCs continue to perform well with sales increasing to 171 million in comparison to 153. The margin ended up at 5.3%. And of course, the model was affected by the lower volumes. So the first quarter ended up with the sales of 440 million and an operating profit of 22 million. If we turn to page 10, focusing on industrial solutions, in this business scenario, we are on the technology and geographical expansion journey. And if we look on page 11, we see some of the different product areas. So these are domestic appliances, hygiene products, furniture, different automotive things, and garden forest equipment, and of course packaging and other industrial segments. If we then turn to page 12, focusing on the first quarter for industrial solutions, In this quarter, we saw a 7% increase if we adjust for currency, and we saw that the automotive volumes increased, and we saw that the supply chain disruptions have less an impact than we previously seen. We saw also demand for products in consumer discretionary sector slightly lower due to weaker economy. So the first quarter ended up at 740 million in sales, an operating profit of 46 million, creating an EBITDA margin of 6.2 percentages.

Good afternoon. Per-Ola Holmström presenting Group Financial Highlights on page 30. Net sales ended up at almost 2.5 billions, which was a 20% increase decrease adjusted for currency compared to last year. Operating profit went down from 267 millions to 193 millions, giving an EBITDA margin of 7.8% compared to 9.3% last year. The cash flow after investments was minus 46 millions compared to minus 41 millions we had a situation during this quarter where we built up additional accounts receivables because of leaving the supplier finance solution with one of our main customers so that is the reason for that and other areas in the cash flow were more similar to last year. Earnings per share ended up at 0.5 SEC compared to 0.75 SEC last year.

If we then turn to page 14 and look into the current situation per business area, starting with the medical solution, we have a maintained growth strategy lot of focus and emphasize on innovation based on strong customer relationships on the integrated solution side we have established position in new product areas we have a base in a flexible production structure and we see progress in the automotive area that is very positive for the emc but overall we see some geopolitical concerns affecting integrated solutions On the industrial solution side, we have advanced our market positions, a lot of emphasis on sustainable solutions, but we see weaker economic conditions. We will now open up for questions.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star 5 again on your telephone keypad. The next question comes from Carl Ragnestam from Nordea. Please go ahead.

Hi, it's Carl here from Nordea. A few questions. Firstly, you often provide guidance for integrated solutions in the coming quarter. Is there a specific reason why you don't do this this time and should we therefore expect quite flat these sequential volumes from Q2 onwards?

We have normally commented when we have seen larger sequential deviations up and down and this business area has been a more volatile business area. Right now we think it's a more stable situation and sequentially compared to Q4 last year the difference is minor and hence we don't give any more or further guidance to the next quarter.

Okay, very clear. On medical you said that IVD was unchanged in the quarter. Would you say that the inventory levels are normalized now and also should we expect IBD to turn into a positive territory here in the coming few quarters or maybe more stable here at fetish levels?

Yes, I would say that there are still larger than normal stocks in the total market chain within IBD. not be on normal levels. Long term, IBD is growing, but due to the pandemic and the situation afterwards, there has been a large build-up that are now sort of gradually moving down, but it's still on a higher level than normal.

But then should we expect it going back to negative growth territory again to normalize inventory levels, meaning that the neutral level in Q1 is a bit of a one-off, or is it more flattish from here as well?

No, I would say we don't expect it to decrease from this level, but this level is, as a total volume in the world, is less than the consumption. So the stocks are sort of decreased during the first quarter.

Okay, very clear. And, I mean, looking at the industrial solutions here with a 7% organic growth, more stable automotive production, less or maybe no raw material headwinds, I'm a bit curious to know more what's holding back margins here. I mean, is it the mix effect with the consumer segment being more profitable than automotive, or how should we look at it?

I would say the positive sequential growth margin effect come from mainly a more effective production setup during this quarter and that is mainly within automotive where we have seen disruptions is of based on shortages for components so that is the main reason and then we still have some positive effects coming from further price increases in this quarter as well. So these two have mainly had the positive effect.

And the final one from my side is maybe looking at integrated margins. It's continuing to slide sequentially here as well as here. Are you implementing any measures to start restoring it? I mean, I guess you might have quite massive over capacity in heated tobacco currently. So what is sort of the plan here? Are you planning to take on more similar volumes to bring up capacity or is it to keep the current capacity and rather try to cross-sell into other similar segments but maybe not in heated tobacco?

Yes, I think the answer to that is a combination. we feel that we have a very good skill set within our integrated solutions business area and we see that there are good opportunities within other areas that we have identified and that we are working on and of course we are taking down costs but we would like to maintain our cutting edge technology to make sure that we can build a situation where we have more customers and more diversified type of products in the production but that takes time and as we explained during the strong growth of the VHP it took all our energy in order to maintain that growth and we saw and knew that there will be a situation where the customer will have parallel sources and that day has come and it's an opportunity for us to sort of balance the business area.

But for you to take on or win new projects within I guess the consumer related area in a period of a weakening consumer maybe globally is it a lot of projects out there or is it a bit of a struggle compared when you when you chose to take on heated tobacco instead, I guess it was a better situation to sort of win the project.

Yes, I would rather explain it like the VHP was an extraordinary situation with this new market and very, very strong growth. We don't expect that to happen as we explained when it happened. We rather build with normal growing customers step by step.

Okay, very clear. Thank you.

The next question comes from Carl Noren from SEB. Please go ahead.

Yes, hello. A couple of questions here. We can start with working capital. I'm just wondering if the current levels are the new normal or is it more to come in terms of natural capital increases going forward or have we seen all of this in the quarter?

I would say that the more the larger changes we have seen lately that has been so to say and during this quarter we have built the accounts receivables natural to that situation so it should be on a more stable level of course if And when we grow, that will drive some additional working capital in money, so to say. But that is, of course, natural.

Okay, great. And then a question on pricing. You state now that pricing is a lower contributor to the sales growth in both medical and industrial. But it would be happy if you could give any sort of split on how much... prices in both medical and industrial or some sort of data that would be helpful?

Price is the smaller part of the growth in both areas. So it's the growth is coming from very much real growth so to say in both areas.

And then And a follow-up on medical then, so it looks if diagnostics were flattish. I guess the elective side is performing really well, as we've seen in many other medical companies. Is that correct? Or do you see increasing volumes there?

On the surgical side, we see growth, but we see growth across most areas except the IBD.

Okay, that's great. And then just a question on industrial demand there. We're back to organic growth again after declining in Q4. Would you say that the decline in Q4 was mainly due to the, or was it only that there were supply chain disturbances among the automotive customers and that has now stabilized a bit? So is this a level to expect going forward in the industrial side, do you think? if we assume that there are no additional supply chain services, so to say.

I think you could say it's like we had a positive effect in this quarter when that happened, so to say. And we had a troublesome period in the beginning of last year. So from that, it was... driving the growth in this quarter going forward the world is of course a bit uncertain in all areas and it's hard to say where that is turning going forward with the industrial volumes okay that's great thank you

The next question comes from Johan Skoglund from DNB Markets. Please go ahead.

Hello. So interesting to see continued growth in EMC thermal. It's now a sizable part of integrated solutions. So out of the growth we saw year over year, are you able to quantify how much is demand, price, or volume?

It's very much volumes. And as we said, it's very much coming from the automotive part of EMC.

Okay, thank you. And on a similar subject, your acquisition of P&P Technology here in Q2 are able to provide some more color on the strategic rationale. It's quite small. This is more of a technology acquisition. And can you say anything about the company's profitability?

Yes, the rationale behind that is twofold. It's technologies, some added technology to our portfolio, but it's also relationship with interesting customers.

And profitability-wise, the company has a good profitability, not really the level we have, but... That has not been the main driver for this acquisition, as Krister mentioned. It's a good profitability.

Okay, very good. So no more questions from me. Thank you. Thank you.

As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

I would just like to thank you for your interest in Nolato and the presentation of our first quarter and I wish you a great rest of your day. Thank you.