Nolato AB (publ)

Hello and welcome to today's call with Golato where CEO Kristi Holqvist and CEO Per-Ola Holmström will present a report for the third quarter of 2024. After the presentation there will be a Q&A so if you're calling in and want to ask a question please press star 9 to raise your hand and then star 6 to unmute yourself when you're given the word. It's also okay to send in questions through the forum to the right and with that said I hand over the word to you guys.

Thank you and welcome to the presentation of the third quarter of the Lotto Group. This is Christoffer who is speaking. If we start on page two with the summary of the third quarter, we saw a quarter with an increased sales, approximately 5%, and the growth was across both business areas. We saw an increased EBITDA that rose by 22%. ending up at 235 millions. That, of course, corresponds to an increased margin, ended up at 9.8, and we saw this situation in both our business areas. The strong financial position with a relation EBITDA towards financial liabilities ended up at 0.6 times. This is enabling us to act together with customers and continue to build our global offering to the market. Turning to page three, summarizing the two business areas, we saw the good growth and focusing on offering on two different markets, but with the same offering across and enabling and creating synergies between the business areas. Jumping into the medical solutions business area, on this slide you will see the long-term growth, continuous growth over the 20 years shown on the graph. Building strong footprint together with customers on a long-term basis by continuous growth together with these customers across. On page five, we are showing our focus products areas within the medical solutions business area. If we start on the top right corner in vitro diagnostics, this area saw growth in the quarter after some sluggishing volumes or low volumes after COVID. This area has been affected by COVID with strong growth early on in the COVID situation and then some supply reduction or stock reductions across the full scope. And now we see growth again. The second one, cardiology, has been affected also by the COVID. And we've seen first slow volumes in the early days and then some supply chain buildups and now some reductions in the supply chain. Pharma packaging, it's a stable market. It contains dry containers for liquid and solid drugs based on an offering to big pharmaceutical companies. Then continence care, it's of course a high volume market. with the high usages of these products for people that have some difficulties with the continence situation. Endoscopy and general surgery, it's an interesting market with some changes coming with more optimization of the surgical business. These business areas also have had some sluggish volumes during COVID and after COVID with build-up and long supply chain disruptions. The drug delivery market, long-term growth market, stable and continuous, not affected by COVID at all, not in any directions. So it's more of a home care business. You get your drugs and continue to use these drug deliveries. We see a long-term potential in this. Looking into the financials of the third quarter, we saw an adjusted, currency adjusted growth of 5%. And within that situation, we saw a good growth for the IVD business. We saw healthy volumes within the drug delivery. We saw, on the other hand, lower volumes in other category. And we've been communicating about the customer product recall affecting this year. We saw within the pharmaceutical packaging some lower volumes. There were some customer inventory adjustments and also some geopolitical effects in this quarter. This total sales ended up at 1.355 million and an operating profit of 145 million, creating a margin of 10.7%. If we look on the pie chart on the right corner, we see some movements between different segments. We saw, of course, in vitro diagnostic growth growing as a total percentage of our cells. We also saw drug delivery growing. Then on the other hand, we saw some decline in the percentages for pharmaceutical packaging, also on the other segments in this quarter. If we then jump to page seven, focusing on engineered solutions, on this 20-year graph, we see some heavy growth over some years, and then a downturn with the phase-out of our VHP business. We are building a solid and strong footprint within multiple areas, so that's what we are doing at the moment with this business. If we look on the focus product areas within the engineered solutions, starting at the right upper corner on the consumer electronics, this consists of different wearables, smart home, connected Wi-Fi systems, and the different type of products. Then we have our automotive area, where we focus on very technology advanced product, but mostly based on the Scandinavian automotive market. Hygiene products are different kind of devices and such things that are around the hygiene area. On the other area, we see some household appliances, furniture, and some cleantech products. Then we have the materials selections, which consist of electromagnetic shielding products of communicating devices and thermal management product protecting electronics. This area is a little bit different in the business setup than the rest. It's more our own platform products that are applied in different areas. Jumping into the third quarter of engineered and the financial side of the business, we saw an increase in the quarter 4% if we adjust for currency. We saw during the quarter temporary rise within the hygiene segment. We saw also signs of the decline in volumes within the automotive based on a lower end customer demand. And we think this will negatively impact the fourth quarter as well. Within the materials, we have generated increased volumes and a growth of 17% adjusted currency. We saw growth across, but also healthy growth for the telecom in comparison with the slow quarter last year. So the margin ended up at 9.8%, of course, based on our cost adjustments in our Asian operations, but also a favorable product mix. If we look on the sales per customer area chart, we saw a decline of the automotive. Other area was growing good, and of course, materials were growing good in the quarter.

Good morning, Per-Ola Holmström commenting Group Financial Highlights on page 10. Net sales was a growth quarter by 5% and sales was 2.4 billion compared to 2 billion 340 millions. Operating profit rose 22% to 235 millions compared to 193. totaling an EBITDA margin of 9.8%. The effective tax rate was 21.8%, very similar to the Q2 number. Cash flow from operating activities increased to a strong 327 millions compared to 280. However, net investments increased to 136 millions, which is higher than the previous quarters this year, as the medical expansion in Hungary for the new project has started, and we are paying out money for that equipment. For the full year 2024, we expect around 700 millions in capex. Adjusted earnings per share rose to 0.61 sec compared to 0.48 in the quarter. Return on capital employed increased to 11.5% as a combination of the improved profitability and a more slim balance sheet.

Turning to page 11, focusing on the current situation per business area. On the medical solutions business area, the maintain growth strategy, but we see some temporary sluggish market activity. We focus on margin, cost adjustment, pricing strategy and efficiency. Our offering is of course based on innovation and sustainability. We have a very broad customer base with long-standing close customer relationships, focusing on the large pharma and medtech companies. The new significant customer contract within our drug delivery is validating our old strategy, and we are looking forward to that large program. On the engineered solutions, we have phased out the BHP from this quarter. We, of course, have advanced our market positioning and establishing positions in new product areas. We are successful in the automotive area that are positive for our materials business. And so that's sort of the current situation. And we now open up for questions.

Thank you so much for the presentation here. And as you mentioned, we will move straight ahead to the questions. So if you're calling in and want to ask a question, please press star nine to raise your hand and then star six to unmute your microphone when you are given the word. And the first question here is Carl Ragnarsson from Nordea.

Hello, it's Carl here from Nordea. Can you hear me? Yes. Yes, very good. Thank you. A couple of questions from my side here. You mentioned that you had one customer who had inventory buildups in the surgical segment. Is it of any magnitude or is it more that you wanted for, I'm not sure, good faith, just mention it or...

It's not a large effect. We had 5% growth in the quarter, and this effect is estimated to be less than 1% units of these 5% units growth.

And this effect, is it just related to Q3, or will it linger into Q4 and Q1?

as we see it this is a one-time thing which is positive in q3 and it will be negative in q4 and then it's gone okay uh very clear erp system and that's the reason uh this time okay got it very very clear

And looking at the page six in your presentation, sales by customer area, I'm just trying to square the mixes here. One, and you had surgical volumes being quite good, which I guess is a little bit negative mix-wise, but IVD growing, which is mixed secretive. So if you look at those changes and you try to aggregate it, would you say that you had a positive mix nonetheless, or?

And it's a positive mix slightly, I would say.

And would you by then say that the mean or the absolute majority of the year-to-year delta in margins is still perhaps pricing and efficiency initiatives rather than the mixed effect in the quarter?

Yes, yes.

Okay, very clear. You also mentioned that networks grew seemingly for the first time in a while, if I remember correctly. In EMC, is it a sustainable trend or is it more hard to determine or hard to speculate in currently?

I think it's been very low for a period of time and it's a little bit of some of that coming back. How long term it is, it's difficult to say.

But do you see the same trend so far in Q4 as well or is it volatile between the quarters or?

I think it's a small uptick from the low volumes we are comparing to. And in that sense, it will be a little bit stronger than Paris and Water in Q4 as well.

Okay, very clear. And the final one from my side is maybe the water market. Did you experience that it was tough throughout Q3 or Was it more of the latter part of Q3 and how do you see volumes play out over the coming few quarters here? Also, if you could a little bit squarely, I guess the positive mixed effect in EMC with the auto and also their telecom networks coming in that might at least on any bit the level of set the auto dropper. How should we look at those dynamics?

Starting with the first part of your question with the automotive market, we saw a gradual decrease during the quarter and we estimate it will continue to be slow. So that was that part. It's mostly affecting the non-materials part of the business, more on the other part of our business.

And the mix effect from EMC perhaps offsetting the water, or is it difficult to answer over the coming quarters here?

Well, I would assume that there is a positive mix effect coming from that. As you know, we have higher margins within materials, and that will support the mix effect you're asking about.

Okay, very clear. Thank you.

Thank you. Thank you so much for the questions, and we will now go ahead and give the word to Adrian Gilani from ABG Søndal Collier. You're welcome.

Hello, can you hear me okay?

Yes.

Perfect. I'd just like to start with a follow-up question on the auto market. You said you expect continued weakness in Q4, but was that sort of an increased deterioration compared to the Q3 levels or similar levels? And I guess also if you expect that engineered solutions in general can defend the current margin levels if we see a further deterioration.

Due to the fact that we saw a gradual decrease of volumes during the third quarter, it will most likely be a little bit slower in the Q4 compared to Q3.

Okay, understood. And then on medical, it sounds like destocking among customers was a tailwind in several of the product areas. Is that something that's expected to persist as well, or are we now on more normalized inventory levels and Should we expect that you will now see sales in line with the actual market demand?

I think within some of the areas within medical, there are very long supply chain situation downstreams. So I think there are some more to come of the adjustments.

Okay, could you elaborate on which product areas those are?

We see a long supply chain within the endoscopy and general surgery. I think that's probably the longest, but also in some of the cardiology.

Okay, understood. And then on EMC, or materials as they're now called, listening to players in the telecom space, it seems like there's an expectation of better market conditions into next year. Are those, or are you getting similar signals from your customers on that front? Do you expect an improvement in 2025?

We are into most of these customers, and well, then of course we are part of that situation, and if they are sort of seeing an increased market situation, we will be part of that as well. But, of course, remembering we are coming from very low volumes last year.

Okay, I understand. And the final one from me, just on the 700 million capex figure for the full year, can you just remind us how much, if any, of that was tied to the Novo Nordisk deal, or whether that will come more in 2025 and 2026?

The situation with the big project you're referring to, we estimated 600 millions in capex in that project. And we are starting to see the effects of that in this quarter. And we estimated that we will have a bit more than 100 millions in 2024. And then even more in 2025 and a small part of it in 2026. So that is the situation for CapEx in that project.

Okay, that was helpful. Thank you. And in that case, that was all for me. So thank you for taking my questions.

Thank you. Thank you so much for the question. And we move on to the last question here. It's Carl Norian from SAP. You have the word.

Hello, can you hear me?

Yes.

Yes, good. I missed some parts of the call here, but I have one question on the group cost. I know that they are up a little bit here to like 12, 13 million in Q2 and Q3 versus before where they were a bit lower. Is there any specific reason for that? Did it else come up? No.

I wouldn't say it's a very big change. It's, as you say, a bit higher numbers these quarters. They might be a bit on the high side. And the previous comparison you did might be a bit on the low side. So, yeah, that's how I see it.

Yeah. And then just a clarification question on automotive. I didn't really hear you there, but it looks like automotive was down some 15% year-over-year here in Q3. Did you say that we expect a slight or similar decrease year-over-year in Q4, slightly higher?

Can you repeat the question?

Yeah, I mean, if you look on automotive sales, I think It appears they were down 15% year-over-year. And I'm just wondering if you see the similar level in Q4 in the year-over-year decline, so to say.

I don't really think it is that high effect, as you're saying, in this quarter. a few percentages below that point. There might be some roundings, but we do see a similar situation, maybe slightly more than that in Q4 as we didn't see the full effect in the beginning of the quarter.

Okay, I understand. So not that dramatic then it sounds. That's good. I think that was it for me. Fun with strong numbers here. So congrats for that and have a good day. Thank you. Thank you.

Thank you for the questions. And that was all the questions we had for today. So I want to thank you for presenting here and answer all the questions. Thank you all for tuning in. I wish you a great weekend.

Thank you all and have a great day and weekend.