Nolato AB (publ)

Good morning and welcome to today's presentation with Nolato. With us presenting today, we have the CEO, Kriste Wallqvist and CFO, Per Ola 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 when it's your turn to speak. You can also submit written questions via the form located to the right of the broadcast and we'll take that up during the Q&A. And with that said, please go ahead with your presentation.

Okay, welcome everybody to the presentation of Nolato's fourth quarter of 2024, starting on page 2. We saw a quarter with the sales increase. We saw 5% if we adjust for currency across the board. Organic growth for both business areas. Now we have been changing our product offering or product portfolio within the engineered solutions business area. And started seeing growth in that area. The operating profit rose by 36% to 240 millions for the fourth quarter. The margin of course is a sharp increase across both business areas and ended up above 10%. We can also happily present that we have a very strong cash flow from operating, which rose to 480 millions during the quarter. And of course that was fueled by improved profit and reduced working capital requirements during the quarter. Turning to page 3, looking at the full year of 2024. During 2024, we had a sales of just shy of 10 billion. So we saw an increase of 1% if we adjust for currency across the board. And during this year, we have of course introduced our new business area engineered solutions and changed the product mix within that area. And now starting seeing some growth from that. The margin ended up at 9.9%. So we saw improved margins across both business areas. The net financial liability of the board of directors proposal for dividend is unchanged at 1.5%. We have a Swedish Krona per share and that is within the policy that says about 50% of net profits and this is corresponding to 61%. So that strong balance sheet enabled us to further grow and expand together with customers as well as acquisitions going forward. Turning to page 4, focusing on the two business areas within the group. So we have medical solutions as the major part of the group, close to 1.4 billion in the quarter. And then we have engineered solutions that is the new formed business area that has been shaped up and we see good improvements in that business areas as well. On page 5, you can see a graph of our 20 last year's development of our sales. So we've seen continuous growth across over the last at least 20 years. If we look on page 6, we will see the mix of different focus product areas. So we are focusing on in vitro diagnostics, which is a growth area with high volume manufacturing, very tight tolerances and interesting to be in for the future as well. Cardiology, which is an area, high focus on very high demands from quality standpoints, implants and so on. Pharmacopoeia, pharma packaging, continence care, endoscopy and general surgery and then of course drug delivery. Jumping to the focus on medical solutions for fourth quarter on page 7. We saw a 5% increase of sales, but if we adjust it for currency, it's a 4%. We saw within the different market areas that we saw drug delivery showed a strong growth. We saw IVD growing compared with the week quarter last year. We saw pharma packaging had lower volumes. We saw inventory adjustments and geopolitical effects on customers in that and also some lower sales from surgical. The margin improved to 11.2%. We saw our continuous focus on improving margins are generating results. And we saw the strategic price revision and cost savings affecting us. If we jump to page 8, focusing on engineered solutions. Here we have had some years of adjusting our product mix and now that is finished and we start working with our future. Here we are focusing on consumer electronics, automotive, hygiene, materials and other areas. Jumping to page 10, summarizing up the engineered solutions business area. We saw a good increase of sales, 8% but currency adjusted ended up at 7%. We saw good growth or good development in all areas except automotive where we saw some decline. Consumer electronics saw increased growth from very low levels and we are seeing that our investments in new areas are bearing fruit. Healthy growth within hygiene, then of course automotive displayed lower volumes as expected. But we also see that we expect negative impact on the start of 2025 for the automotive. The materials business showed sharp increase in volumes and the growth was a full 20% currency adjusted through healthy growth for the telecom side of the materials business. Good growth of margin improvement to .2% of course based on cost adjustments but also a favorable product mix during the quarter.

Good morning. Per-Ulla Holmström commenting group financial highlights on page 11. Net sales increased to 2 billion 382 millions, a growth of 5%. Operating profit increased by 36% to 240 millions and the EBITDA margin was .1% for the fourth quarter. The effective tax rate for 2024 was 22.4%. We expect a similar rate around 22% for 2025 as well. We do not foresee any material changes because of pillar 2 rules. Cash flow from operating activities was very strong amounting to 480 millions compared to 186 last year. The net investments increased to 172 millions compared to 106. Higher because of the new medical project we have during 2025, 2024 invested 140 millions of the assessed 600 millions for that project. We expect to invest more 2025 between 800 and 850 millions for the total year. The strong cash flow has enabled us to decrease net financial liabilities to 671 millions or 0.4 times our EBITDA result. Return on capital employed increased to 12.3%.

If we turn to page 12 and focus on our current situation per business area starting with the medical, we are of course maintaining our growth strategy. Focus on margin, cost adjustment, pricing strategy and efficiency. All of this is based on innovation and sustainability. We have in this business area a very broad customer base with long standing close customer relationship. And of course the new significant order on the customer side validates our strategy. If we look on engineered solutions we have now faced out our effects from VHP. We have and are advancing our market positions and have established positions in new product areas. Of course this is based on focus on innovative and sustainable solutions for the customers. We see success in the automotive area that are positive for the materials side of the business.

Page 13, heads up, we will host a capital markets day March 13 in Stockholm. There will be a possibility to join online as well. You can see here how to register and there are more information on our website and there you can also register for this capital markets day March 13.

We

now open up for questions.

Thank you very much for that presentation and let's dive into the Q&A section here. If you are calling in and would like to ask a question please press star 9 to raise your hand and then star 6 to mute yourself when it's your turn to speak. And we have Karl Ragnestam from Nordea. Please go ahead you have the word.

Hi, can you hear me? Yes. Very good, thank you so much and good morning.

A

couple of questions from my side. Firstly on EMC here as you said grew 20%. Could you give some flavor on the growth development by sub segments or subdivisions automotive versus telecom and also when you get the 20% organic growth what operating leverage do you get in such business? What margins did it contribute for the segment engineered?

Yes, I can comment if we start with the growth and how that is built up. It is growth in all sectors you can say, but the big difference in this quarter is that we have seen growth as well in telecom. So that supported the high growth rate in this quarter. So continuing in a good way in automotive and the other areas and then adding growth from low levels in telecom as well, ending up with a very healthy and good growth in this quarter. Coming back to the margin question, of course it is supporting margin, but not very dramatically. It's a good margin in this quarter supporting. That is what we mean when we say we have a good product mix for the whole business area and supporting that margin of course.

Okay, that is very clear. The question was also a bit if you strip out EMC from the business, I guess all Nolato units should be able to come close to the 10% margin or even nearer. I guess if you're stripping out the EMC which is a creative then the underlying business is I guess quite far from being at the factory level. So what are you doing underlying to improve all operations except EMC? Is it volumes that need to come back or obviously you've done cost savings, but is there something else you need to do?

You remember when we changed our production footprint in Asia and consolidated to the southern part of China. We explained that we have a little bit too much capacity or we have a good capacity to build up some new business. That is on a little bit higher cost than it should be in a normal stage. But that was a cautious decision that we made in order to have possibilities to create new growth in other areas. That is of course affecting the overall margin for the non-materials for the consumer electronic part of the business area. So that is a little bit lower than the group average.

That's very clear. And you also talked about the new customer project in engineered, I assume in electronics. I think maybe you said that. Will that help to improve the utilization in the Chinese production and what size and when you expect it to be fully ramped?

Yes, we also explained that we are not looking for one huge new contract. We are building this by numerous different areas and that of course takes some time. And that is being part of the plan and it's going according to plan, I would say.

But given that you mentioned it, it must have some size, right?

Yes, but that was I think we are explaining that we have some excess capacity both on engineered engineers but also on production capacity. And we anticipate to build this step by step by broad offering and different segments and different customers.

Okay, that's very good. And on medical, you mentioned of course, and we also know that you had several drivers behind the margin improvements during the year 2024 here. You had IVD and pricing for instance. But if we look into 2025, how sticky would you say these effects are? I mean, you raised prices quite heavily. I think it was H124. Have you done more since or will some of these effects ease during 2025?

We are of course working on our long-term goal to bring the medical business area up to 13% as we had pre-acquisition. And that is going forward and that is our plan. And we are of course working with efficiency measures and those kind of things continuously across the board.

Okay, and the final one, if I may, in terms of capital allocation, looking at the EPS grew 50% -over-year, leverage 0.4. I understand that you of course invest in as you said also the 800 million around there at CapEx to the new project in medical, but you're keeping dividends flat -over-year. So what message are you trying to send to us? Is it that you're cautious ahead of 2025 or that you have an active M&A agenda that might come into play? I know this of course is a board question, but I guess that you're a critical part of the capital allocation of course in the company. It would be good to hear what is your thinking. Yes,

well, you know, we are going into a phase where we want to be ready to do good investments and continue to expand our business, but also looking at acquisitions. So that is part of the agenda and we are feeling, we have a good feeling about our future and the development and feel that we have built a good foundation for continuously growth.

That's very good. Okay, thank you. Sorry for that. Thank you.

And a gentle reminder, 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 when it's your turn to speak. We'll move on with Adrian from ABG. Please go ahead, you have the word.

Hello, can you hear me? Perfect. I'd like to start off on a question on medical. When you write that IVD grew or had strong growth, but compared to low volumes last year, where is IVD at currently in relation to what you would call, I guess, normal demand? Are we still below normalized levels?

I think we have come back to not really the high volumes scenario we did see during pandemic and some of the years back from that. But of course, from a very low level at some point when the inventory level reductions were very heavy, we have come back from those levels. So it's not full speed, but it's back to quite a good speed, I would say.

Okay. And then if we just sort of sum up all of the product verticals in medical and look into 2025, are you able to say whether the overall product mix effect, if you expect that to be positive or negative into 2025 compared to 2024?

Yeah, I think speaking about the margins in medical, I would say it's more depending on other things going on to improve margins than mix effects. And we have been explaining a lot of actions we are into to improve margins, and that is going on gradually. And we continue with these actions. And I would say that is more efficient, more important to the margin than the mix effects. Okay, understood.

And then I guess the final one for me on the EMC business, just a quick follow up on the 20% growth figure. Is your best assessment that that, I mean, is that sort of, could it be a bump? Or would you say that it could be the start of a trend of a structural recovery in the market?

I think the growth rate of 20% that we saw in the quarter, it's of course in effect with a sort of weak comparison quarter for the telecom business. So I think we see good opportunities to continue to grow the business area, or sorry, the segment. But I don't think you should expect 20% growth for, that's, of course, dependent on the weak comparison for telecom.

Okay, understood. In that case, that's all for me. So thank you. Thank you.

We'll move on to the next person calling in with a phone number ending with 2479. Please go ahead, you have the word.

Yes. Hello, can you hear me?

Yes.

Great. Two questions from my side. It's Marcus from BNB. You mentioned M&A as a place you could allocate your capital, given the strong balance sheet. But could you give an update on GW plastics in the US and maybe your view on growing organically versus M&A? And maybe if you can, what are some lessons learned from the big acquisition? Should we expect smaller acquisitions or a big one? If you could spend some time there.

Okay, so we have the base for our growth is, of course, organic growth. Then we have, we are from time to time acquiring companies where we see some synergies or some benefits. It could be a geographical area that we are not covering, or it could be a technology that we would like to add to our portfolio. And that strategy is continuing. But of course, in the base, there is organic growth, and it should be good organic growth continuously. And then a comment on the GW acquisition, which of course, were done in the middle of a pandemic. And we felt that this company was a very good match for Nolato. We still feel that it enabled us to have good geographical footprint across the important continents across the world. And of course, the pandemic affected our work with the company. It was difficult to travel. It was difficult to have physical meetings with customers and improving things in the relationship with the customers. So that took some of the time away from our sort of improvement that we are doing in the acquisitions. But the acquisition itself was good. And it took a little bit longer time to get it to where we want it.

Okay, and then maybe looking forward, just what should we expect in terms of the size you look at acquisitions, a big one or more bolt on small ones?

We are to some extent in a position where we have a very good geographical footprint. And we are now looking into acquisitions where we can sort of add technologies to our portfolio. In that sense, it could be maybe looking different sizes. Of course, it's more important to have the right company than the specific size. So it could be from the maybe smaller size to a little bit larger. So but of course, this is difficult to control time wise, because we know the companies would like to buy, but it takes time and discussions and two parties wanting to create a new thing.

Okay, those were my questions. Congrats on a good report.

Thank you. Yes. So with that said, thank you very much, Krister and Per-Ola for presenting. And we wish you all a great rest of the day. And thank you very much.

Thank you all and have a great day.