Nolato AB (publ)

Hello and welcome to today's webcast presentation where Nolato will present the Q2 report for 2024. With us presenting we have the CEO Krister Wahlqvist and CFO Per-Olo Holmström. If you're calling in and would like to ask a question please press star 9 to raise your hand and then star 6 to unmute yourself. We will then announce if it's your turn by saying the last four digits of your phone number. You can also use the form that is located to the right. And with that said, please go ahead with your presentation.

Good afternoon, everybody, and welcome to Nolato's presentation of second quarter 2024. This is Krista Walkie speaking. Starting on the second page of the presentation deck, we can conclude that the sales amounted to a little bit more than 2.4 billion Swedish krona during the second quarter, which is a decrease of approximately 2% if we adjust for currency and acquisitions. We also see that the VHP effect will be phased out during next quarter. And if we would exclude the VHP effect from this quarter, we would have seen growth. The operating profit ended up at 245 millions in the quarter, and we see that our margin improvement initiatives yields desired effects. During the quarter, we had a very strong cash flow from operating amounting to 434 million. And of course, the improved profit, but also reduced tied up working capital created that situation. We have a very strong financial position and the financial liabilities in relation to our adjusted EBDA amount totaled 0.8 times. If we turn to page three in the presentation deck, showing the two different business areas within the group, across the two areas, we have the same offering to the market, but of course, with different dynamics, creating different key drivers for the two areas. The medical solution is now the largest part of our group and engineered is in the re-focusing phase of the BHP business. Turning to page four, showing a 20 year of medical development and it's a continuously growth over the period with some good growth situation across the years. The quarter ended up just shy 1.4 billion Swedish, and it corresponds to 56% of group sales. These are the, on page five, we will see the focus product areas within the medical division. And of course, we've seen a good growth within in vitro diagnostic and some small decline within pharma packaging. On page six, we summarized the medical solutions business area for the second quarter. The sales was unchanged. And then, of course, we saw that IBD grow compared with the week quarter last year. We saw lower volumes within our other category. And it's the customer product recall that we have informed previously about. And the pharmaceutical packaging experienced lower volumes. We saw inventory adjustment, but also some geopolitical effects affecting the business. The margin improved to 10.9%. And of course, our continuous focus on improving margins is generating good results. And also the strategic price revision and cost savings, creating the margin of 10.9%. So the operating profit EBITDA ended up at 149 percentages. On the right lower corner you can see the split of the sales between different product areas and in that sense we can see the other category decreasing two percentage points according to in the second quarter. Jumping over to engineered solutions, on page 7, we have seen volatile development but underlying growth, but over the last period a decline due to the BHP downsizing. On page eight, we see the split of the different segments. We see the materials that is a little bit different business than the rest. It was formerly called EMC, but the other four categories are very similar in the nature. On page nine, we can summarize the engineered solution second quarter. We saw a decrease of 4% adjusted during the quarter. And of course, depending on the volumes within the consumer electronics, declined this quarter as well. And if we would exclude the VHP from the situation, the rest of the business is growing approximately around 5%. The automotive area continued to grow, but on a lower growth level than the first quarter. We saw also good growth in the hygiene area. in comparison to, of course, a weak quarter last year. And in the other category, we saw also some good growth with the recovery of consumer discretionary sector. The margin ended up at 10%, of course, driven by a favorite product mix, but also the cost adjustments announced previously. So the quarter ended up at just shy of 1.1 billion with an operating profit of 108 millions during the quarter.

Hello, everybody. Per-Ola Holmström commenting key performance indicators on page 10. Net sales was 2,439,000,000 A decrease of 2% from the effects of the BHP business, except for that effect, the group did have growth. Operating profit rose 24% to 245 millions, now totaling an EBITDA margin of 10.0% compared to 8.0% last year. The effective tax rate was 21.9%, which we consider to be in line with the full year rate. Cash flow was strong from operating activities, 434 millions, supported by higher results and less working capital need. After investments increased as well, as CapEx was slightly lower than last year and totaled 336 millions. For the whole year, we expect around 750 million SEC in CapEx. Earnings per share increased to 0.63 SEC compared to 0.58 SEC last year. We have a solid financial position with net financial liabilities of just above 1.1 billion and an adjusted debt ratio of 0.8 times.

On page 11, we're commenting on the current situation per business area, starting with medical solutions. We have a maintained growth strategy, but temporarily we see some sluggish market activity. A lot of focus on margin, cost adjustment, pricing strategy and efficiency. The business, of course, is based on innovation and sustainability. We see a broad customer base with long-standing close customer relations. And, of course, the new significant customer contract validates our overall strategy. On the engineered solutions, we see the effects of the BHP phased out from third quarter this year. We have advanced our market positions and established a position in these new areas, creating some underlying growth. We focus of course on innovative and sustainable solutions and we also see success in the automotive area that is positive for the materials part of the business area but continuously lower volumes within the telecom area. We will now open up for questions.

Thank you very much for that presentation and like you said now it's time for the Q&A. If you're calling in and would like to ask a question, you can press star nine to raise your hand and then star six to mute yourself. We'll then announce if it's your turn by saying the last four digits of your phone number. And we've got a person calling in with a phone number ending in 8692. Please go ahead, you have the word.

Hi, it's Adrian here at ABG. Can you hear me okay? Yes. Yes, perfect. So first of all, just regarding you mentioning the bigger vacation effect into Q3, I guess what's the underlying reason for why that has been less of an effect in recent years and why is it a bigger effect now?

It's more a general observation based on history, and if the business cycle is a little bit weaker, some of our customers tend to use that as making a little bit longer close down and movement of products and so on.

Okay, I understand. And then also just a question really for both segments, since you saw clear jump in margins in both of them. Was there anything unusual in the mix effect or other factors that you expect to reverse? Or are these margins sustainable other than factoring in the seasonal effects like you're flagging for? Otherwise, are they sustainable?

Of course, there are many aspects affecting the margins, but I wouldn't say there are any unusual or things going on in this quarter largely affecting the margins. So under these circumstances with COVID, the sales roughly in the levels we have seen and utilization like it is and no big mixed deviations it's good margins but it should be sustainable okay perfect and also you you happen to release

Q2 numbers at the same time as Trelleborg. And for their fairly new medical segment, they write that the protracted inventory adjustment phase is deemed to have eased during the quarter for medical. Is that something you agree with, that these stocking effects are sort of subsiding, or are you seeing a different trend there?

I think we are in different market segments and so on and so forth. But I think we have seen those effects of stock changes and so on, on different segments in different periods. And now we saw it on the pharma packaging, but we have seen some ease of it on other areas. Okay.

And the final one from my end. Could you give us some sort of an outlook for the EMC or the materials segment? It did go in the quarter, but also still weak demand in telecom. Is that something you expect to see any improvements in the second half of the year?

We will continue to emphasize growth in the new areas like automotive and others. And the telecom is very hard to predict at the moment. And I think following the big players in that area is probably a better thing to get a grasp on when that is coming back.

Okay, I understand. In that case, that was all for me. So thank you for taking my questions.

Thank you, Adrian. Okay, we're moving on. And a reminder to press star nine to raise your hand and then star six to unmute yourself. And we've got the next person calling in with a phone number ending in 5594. Please go ahead. You have the word.

Thank you. Johan Skolen from D&B here. Continuing on Adrian's vacation question. Do you mean that the vacation effects should provide a net negative effect this year or could like OpEx gains on your end balance that to what they're How should we interpret the guidance here?

I think that guidance is around sales numbers mostly. We do have a situation which is normal, of course, where most of the cost base, which is personnel related, is not affecting margins as that is reserved earlier during the year. And the comment we make is then around sales mostly.

Okay, very good. And with the IVD growing, can we assume that the specific customer situation where a middleman was cut out earlier, is that finished?

That situation has developed most likely like we anticipated and we have gained business with the large OEMs and decreased our sales to the middleman.

With IVD growing year over year, could you say anything about the quarter over quarter development?

That is the same situation and it's similar. So we did see the same development in this quarter as well. Between the quarters sequentially, there is no big effect. So it's not a clear trend going forward, but Comparing to last year, it's a similar development, I would say.

Okay, very good. And the final question is on the VHP effects. You mentioned they're phased out. Does that mean you still produce some volumes, or are the production of that product completely phased out now?

We have, towards that customer, we still have some low volumes that will continue on a low level going forward.

Okay, very good. That was all for me. Thank you. Have a nice summer and good luck with Q3.

Thank you.

We're moving on to the next person calling in. And a reminder to press star six to unmute yourself. The next person calling in here is 2479. Please go ahead. You have the word.

Hello, can you hear me? Yes. Yes, good. It's Karl Norin from SVD. I have a question on the margin here in the medical side. As you said, IVD is now back to growth again. How much of the margin improvement would you say is driven by mix and how much would you say is driven by internal cost work?

Can you say anything about that? I would say that most of the improvement comes from the cost improvements and other measures we have taken to improve margins rather than mixed effects.

Yeah, that's good. And on this location impact that you're guiding for in Q3, is that in both segments or is it more in one segment than the other?

It's partly in both segments, but of course engineered is having a larger part of their business in let's say europe and these countries so we do see a larger effect in in that area but it's also in in medical to some extent yeah and in medical do you think you can get back to organic growth here in in the second half i mean you are

facing a bit easier comparison, but it still seems to be a quite weak market.

Our long-term targets for the medical remains. Of course, we see that the large new program that we have won are taking, we are addressing a lot of engineers towards that preparation. And that, of course, takes some of the energy out of some others area in the shorter period.

Okay, I see. And then a question on engineered, just on demand here, coming into the second half, I mean, maybe related to that you're driving for some bigger systems, but I've seen automotive players, both in light vehicles, such as Volvo cars, and also the larger truck manufacturers are seeing slightly lower demand here in Europe. Can you say anything about what you see on that side for the second half here?

I think some of that effect might be in what we see in the longer, more strong seasonal effect during vacation time.

Okay, so are things slightly lower than what they can see from the automotive side, short term?

It could be, if they of course have a slowdown, they might use more longer vacation times and so on to sort of use have people on vacation instead of producing full speed. Okay, that's clear.

That's all for me. Thank you. Have a good time. Thank you.

Okay, we're moving on here with the questions. We got a few written ones here. In Q1, EMC was flat. Now in Q2, you recognize a slight organic growth for the segment. Is it fair to assume that EMC is set to accelerate its organic growth pace from here or will telecom hamper the pace also in the second half of the year?

The development of telecom in the second half is a little bit uncertain I would say but the other segments within the materials or EMC is growing and of course we are coming to some some lower comparison quarters for the telecom as well.

Q2 was the last quarter with heated tobacco in the comps. Is it possible to update us on the organic growth pace during Q2 in the former industrial solution segment?

Yeah, I would say if we look into the engineered solutions but exclude the BHP effect, I think Christopher, he commented that we did see a 5% roughly growth between the quarters. So that is, let's say, a more... Yeah, a better number to rely on. And that is what we did see. So quite good growth, except for that part, of course.

And you mentioned in the report that you have seen a slower number of projects start recently. Given the long project cycles, will this hit you in the short term or is it more of a mid to longer term effect for you?

We have a good pipeline of projects. It's more a general comment that there is hesitance on starting new projects. But I think that's a very short term and most likely will not be seen in the growth rates going forward.

Okay, that's a wrap here of the Q&A. That's all of the questions that we have. Thank you very much, Christer and Perola for presenting. and also answering all of our questions. And also thank everyone who followed along for this presentation with Nolato. And I hope you have a great summer and until next time, thank you very much and goodbye.

Thank you, goodbye, have a great summer.