Nolato AB (publ)

Hello and welcome to today's presentation with Nolato. With us presenting today, we have the CEO, Christer Wallquist, and CFO, Per-Ola Holmström. If you have any questions and you're calling in, please press star nine to raise your hand and then star six to mute yourself when it's your turn to speak. You can also submit your written questions via the form located to the right. And with that said, please go ahead with your presentation.

Thank you and welcome to the presentation of Nolato's first quarter 2025. This is Chris DeWalkwist speaking. If we summarize the quarter, we had similar sales as comparison quarter, but with a very strong increase of our margins amounting to 11% as a total. creating an EBITDA on 271 million. We saw growth within the medical, but slightly lower sales for engineered solution due to the automotive sector. If we look on the margins, we strengthened the margins in both business areas, but particularly strong performance for medical solutions. Still, we have a very strong financial position with net financial liabilities in relation to adjusted operating profit of 0.5 times. Moving to page three in the presentation deck, looking at the two parts of our business, medical solution, now correspondent to 57% of our total sales, and engineered solution, 43% of the overall sales of the group. Jumping into medical solutions, starting with that, sales amounted to just below 1.4 billion in the quarter. And you can also see the continuous growth of the business area over the last 20 years on the graph. Moving to page five in the presentation deck, splitting up the medical sales in different focus product areas. During this quarter, we saw growth within the drug delivery part of the business. And other than that, minor changes around the different parts of the business. On page six, we summarized the medicals first quarter. We saw adjusted sales increase, if we adjust for currency, of 2%. And we saw stable volumes across all the different market areas. But of course, some growth within the drug delivery. Surgical has been stabilizing. And within the IBD, we saw some lower volumes during the quarter. But it's more volatility quarter to quarter than anything else. A strong margin improvement, a full 1.9 percentage points increase amounting to 12.2% for the quarter. We saw that coming mostly from our US operation with the cost adjustments and intensive work together with customers of the total supply chain in giving improvements both for the customer and ourselves. The expansion in Hungary linked to the big order that we announced a year ago is going according to plan and is progressing in a planned way. We have during the quarter also acquired a property in Poland that will enable us continued expansion in Europe. This is approximately 8,000 square meters of property. So the quarter ended up just below 1.4 billion, an operating profit of 171, creating the margin of 12.2 percentage points. Jumping into engineered solutions, and here you see some volatility, but over the last years we have stabilized and are now focusing on finding new business and continue the growth of the business area. If we split up the sales within engineered solutions, during this quarter, we saw a good growth with materials growing at 12% in the quarter. We saw slower sales within automotive. That was expected, but we've seen the volumes now on a lower level, and we expect that to continue on that level for the coming period of time. If we then look on page nine and summarize the business area, we saw adjusted currency sales decrease of 3%, and as expected, automotive industry declined, and stable volumes across the other sectors, except within materials, that we saw sharply increased volumes and growth at a strong 12%. The margin within the business area increased to 10.1 percentage points. It was, of course, favorable product needs, but also cost adjustments that we have made in the business. So sales amounted to 1,058,000,000 in the quarter, operating profits at 107.

Good afternoon. commenting group financial highlights on page 10. Net sales amounted to 2,453,000,000, similar as same period last year. Operating profit in EBITDA increased 14% to 271,000,000 by margin improvement in both business areas, but mainly within medical. And the EBITDA margin for the group improved by 1.3 percentage units to 11.0. The effective tax rate was 21%. And we expect between 21 and 22% for the full year. Cash flow from operating activities was similar to last year. boosted by improvements in profit, but somewhat higher working capital requirements having a negative effect. Increased activity and sales at the end of the quarter compared with the end of 2024 resulted in higher trade receivables. Net investments, as expected, came in higher. at 271 millions compared to 230 millions last year. Large effects of CapEx in Hungary for production of devices for treatment of overweight and diabetes. In addition, an operating property in Poland was acquired for 69 millions for future medical expansion. We expect 850 millions for the full year. Earnings per share increased to 0.74 SEC and return on capital employed improved to 12.7%, mainly by the margin improvement. Net financial liabilities in relation to EVTA at a low level, 0.5 times, enabling expansion and

Turning to page 11, focusing on current situation per business area. Starting with the medical solutions business area, the growth strategy is maintained. We focus on margin, cost adjustment, price strategy, and efficiency. We base this on innovation and sustainability. Within the business, we have a very broad customer base with longstanding close customer relationships. Within the engineered solutions, we have advanced our market position. We have established a position in new product areas. We have a success in new markets that is very positive for our materials part of the business. We will now open up for questions.

Thank you very much for the presentation. And yes, let's open up the Q&A section here. If you're calling in and would like to ask a question, please press star 9 to raise your hand and star 6 to unmute yourself when it's your turn to speak. And first, we have Adrian from ABG. Please go ahead. You have the word.

Hello, can you hear me OK?

Yes.

Perfect. Yeah, a few questions from mine. Starting off in medical, quite a steep margin lift in medical. I mean, was this, to an extent, a quarter where things went your way? Or is this entire margin lift explained by structural price-cost adjustments that would mean that this is the new base margin that you can increase from in coming quarters? Or is there a risk we might take a step down in coming quarters?

Yeah. I don't see any specific things increasing the margin in this quarter. I think we can rely on the improvement we have made. We list some of those and we have discussed them for some quarters now and we are happy to see that these improvements are increasing the margins so I don't see this quarter as a one-time effect it should be doable going forward as well.

Okay sounds good and also I know you don't report this specifically but can you talk a bit about how the margin is progressing and give it plastics as well because you mentioned that surgery is sort of stabilizing from low levels and Does this mean you're finally starting to see meaningful progress in give plastics as well?

Yeah, I can start with the margin improvement and the situation in our US operations has improved and the US margin is not fully reaching The average for the business area, the 12.2%, it is less still, but improving. And then, of course, the rest is above that level, which it has been for some time. So that is pretty much the situation.

Okay. On the materials business, it's grown fairly well for two quarters now. Can you talk a bit about the end markets and if it's a rebound in the traditional telecom business that is driving that or if it's the new market areas where you are increasing the materials penetration?

Yes, I would say it's a combination. We have seen some rebound of the telecom, of course, but we are growing in the new areas as well. So it's growth across all of the different segments.

Okay, perfect. And a final one from me, the question we have to ask all of the companies. Can you just say a few words about your tariff exposure and to what extent do you expect to be able to sort of offset any any direct cost increases from tariffs by increasing prices forward?

Our expectation is that we can offset tariffs and pass them across to the customers. I would say also that most of our production is located where we have our deliveries. So most of our sales is not affected by tariff directly, then of course it could be that the customer then sells these products in different tariffs area, which could affect the volumes, of course.

And the local aspect, does that also apply for the sourcing of materials as well?

To the most extent, there are exceptions. So there are things that are sourced across different tariff areas and that could be affected. But then, of course, we will pass that on to our customers.

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

Thank you. Okay, we'll give the word to Paul Ramestam from Nordea. Please go ahead, you have the word.

Hi, it's Carl from Nordea. Some questions for me as well here. In Engineered, I think it's, from my point of view at least, quite impressive margin given the organic drop. You mentioned the cost out, you mentioned the positive mix. Just to clarify here, when you talk about positive mix, you're referring to EMC or is it something else we should acknowledge here regarding mix?

That is correct. We are referring to the growing part of materials or EMC.

Okay, that's very clear. And on the automotive side, are you planning to reduce costs or transfer costs to other areas in order to sort of absorb the lower volumes? It seems that it might continue for a while. And secondly, on on the auto obviously some of your products might through one of your customers end up in the US. Have you seen a weakening auto exposure during the latter part of the quarter is it fairly same as you might expect for the coming two quarters here as you saw in on average?

We have seen stable volumes during the quarter, so it's not declining during the quarter. And we expect the volumes to stabilize on this little bit lower volume for the coming quarters. On the cost side, we have foreseen this decrease in volumes and have taken measures already to reduce costs.

Perfect. They are fully materialized in Q1 then, or is it something else to come in Q2? It is materialized in the first quarter. Very clear. And on your Polish expansion here, I think you took 70 million in capex for it. I mean, it's not massive, but historically you've done these investments, right? Because you have pretty good visibility in incoming volumes. Is it in this case that you're transferring some lower margin products or is it purely new capacity that you need for future growth? And also because last time you did the big expansion, it was post 2020. Of course, it was a pandemic, but then you sort of ended up with quite a big underutilization of some productions, of course unique circumstance, but how do you see it here?

This expansion is not for transferring existing volumes, it's related to our European footprint and we've seen that we In going forward, we see we need more capacity. And then we found this excellent facility that we could acquire. It's very close to an existing plant, and we see that as a future expansion area.

Okay, that is very clear. And the final one, if I may. You said IVD has been coming back quite nicely with the past two quarters here. Now you said it was a bit mute that you said mostly I think due to quarterly volatility. The word mostly, what else is it apart from quarterly volatility?

You can take the mostly out of my previous statement.

Okay, so it's quarterly volatility. Okay, that's very clear. Thank you.

Okay, I will give the word to Carl Norea from SCB. Please go ahead. You have the word.

Hello? We cannot hear you.

In the meantime, we'll give the word to Mikael Lassén from Carnegie instead. Please go ahead. You have the word.

OK. Hi, guys. Thanks for taking my question. Yeah, I want to go back to the modern improvement. Really impressive. Can you say something about the modern improvement or if you have the modern improvement also in in the European business for the medical segments?

It is mainly relating to the U.S. operations and nothing significant to mention within the European sites.

Okay, got it. And the European side continues on a relatively high level, I guess.

Yes. It's not decreasing, no major improvement either.

Okay. And when it comes to this improvement that we saw now in Q1, was this in line with your internal expectations that you saw this?

Yeah, it's always hard to say when different things would appear in the P&L and especially with some of the things going on where we work together closely with our customers and when that is supposed to hit our P&L because that is yeah it's also something that has to be approved by the customers and agreed So I think you could say that it came with a quite substantial effect in this quarter, but the long-term effects we have planned for and been working with for a long time, and hence maybe not a surprise, but still a large effect in this quarter. Okay.

And you have talked about these initiatives that you have implemented, the price changes and cost adjustments and improving the contract or cost out initiatives. Where do you expect more potential from these different initiatives? And what line of sight do you have and visibility do you have for the coming quarters when it comes to these initiatives and modern improvement possibilities towards your new targets?

Yes, we are, I would say, on the timely adjusted plan that we lost some time early on during COVID in this improvement journey. And I think we have now we're making good progress in this and we expect that we will continue to improve our U.S. margin gradually over the next coming quarters and maybe a year and a half or something like that.

Okay. And the final one, can you talk a bit more in general terms about the medical operations in the US, how your different facilities are operating and the market situation for your different end customers there and the markets in general, so we get a feel for how that part is developing?

Yes, I would say we have our different facilities spread around in different places in the US. And I would say they are in similar shape and a similar type of production, maybe some some difference in the the wisconsin one that we have owned a longer time where we have sort of done all these things already so there are some changes in that other than that i would say the market is uh generally speaking it's a positive market uh in in the us as a total and we see uh initiatives from customers on things and a good response from the market Okay, great. Thank you so much.

Thank you. Okay, and that's a wrap here of the Q&A. We got a question here from... Another one from Mikael. Is that correct? Do you have another question or no? I'm good, thank you. Okay, thank you. So that's a wrap of the Q&A section here. Thank you very much, Christer and Pergoa, for presenting today and everyone for tuning in to this Nolato Q1 presentation. Thank you very much. Thank you very much and have a great afternoon.