Nolato AB (publ)

Hello everyone, and welcome to today's presentation with Nolato. With us presenting today, we have the CEO, Christer 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 star 6 to unmute yourself when you get the word. You can also submit written questions using the form to the right. And with that said, please go ahead with your presentation.

Good afternoon and welcome to the presentation of Nolato's third quarter 2025. This is Krister Walkie speaking. During the quarter we saw organic growth in both our two business areas, approximately 2% if we adjust for currency, and that in combination with a strong increase of our margins created a strong increase of our EBITDA. So the sales ended up at 2.3 billion and some, and the operating profit rose 20% to 281. That includes a non-recurring item of 7 million corresponding to an insurance claim. But as I mentioned, we saw strong improvements of margins in both business areas. We have maintained a very strong financial position with a debt ratio of 0.6 times EBITDA, giving us opportunity and possibility to expand together with the right business cases from existing and new customers, as well as executing on our acquisition strategies. The Nolato Group consists of two business areas, the medical solution being the largest part at approximately 56% of group sales and engineered a little bit less than 50% and the rest of the business. Starting out with medical solutions. Here we see sustainable growth and global expansions. And on this graph, you will see a 20-year show of our sales over the last 20 years. So we've seen good growth over the years. We have a very spread business with six focus product areas, and there are also well-spread sales across global leading customers, creating a strong foundation for continuous growth and focus on these six product areas. If we look in to the third quarter for medical solutions, we saw a sharp margin improvement The full 1.4 percentage point ending up at 12.1% in the quarter. That in combination with the increase of sales, 2%, created, of course, an improved operating profit ending up at 159 million. We are expanding our business. So we have expansions ongoing in Hungary, Poland, and Malaysia. And all of these are according to plan. And in our Hungarian facilities, we have, during the quarter, started validation deliveries during the third quarter. And we expect that these validation deliveries to continue on approximately the same level for the coming quarters, and then subsequently expected to increase somewhere in the late second quarter. Jumping into engineered solutions, here you also see a graph of the last 20 years. And we are now in a position where we have downsized our VHP business and are building a strong foundation in the focused product areas shown on this page. Here we have a well-spread business, different product areas with a little bit different If we specifically look into the materials, which is then of course based on our own recipes of raw materials. If we look into the third quarter for engineered solution, we saw very sharp margin improvements. a full 1.8 percentage points during this quarter. And it's coming from implemented cost savings and increased capacity utilization. And of course, some price adjustments. The business sales totaled 1.035 million during the quarter, which was a 2% currency adjusted organic growth. We saw sales to the automotive industry increased through higher product invoicing and more normal vacation shutdowns amongst our customers. We saw a continuous growth in our hygienic area thanks to investments in Mexico and also a positive performance for our consumer electronics, particularly in Asia.

Good afternoon. Per-Ola Holmström coming to you. on growth financial highlights. Net sales amounted to 2,342,000,000 in the quarter, representing a 2% growth adjusted for currency. Operating profit EBITDA increased by 20% to 281,000,000. And the EBITDA margin for the group improved by 2.2 percentage points. to 12.0%, including a non-recurring positive item of 7 million. The effective tax rate was 19%, which we expect it to be for the full year as well. Net investments were 183 millions in the quarter, a higher level of capex than last year as planned, mainly for the expansion in Hungary. We foresee around 850 million SEK in capex for the full year 2025. And by then, we expect to have paid almost 500 million SEK of the total expansion of 600 million SEK in Hungary. And hence, cash flow after investments was lower than last year, 180 millions compared to 191 millions. Earnings per share increased to 0.8 SEC. Return on capital employed improved again to 14.1%, mainly driven by the margin improvement.

Okay, focusing on the current situation per business area, starting with medical solutions. Here we have our maintained growth strategy and we see high market activity. We have been focusing on margin, implemented cost adjustment and increased efficiency. Of course, innovation and sustainability based on a broad customer with long-standing close customer relationship. We also are now expanding in Asia, in Poland and also in Hungary. On the engineered solution side, we have advanced our market position We have a lot of focus on innovative and sustainable solutions. We see success in new market, which is positive for materials. And of course, expansion of our operations in Malaysia. We will now open up for questions.

Thank you very much for that presentation. Yes, let's open up the Q&A section here. If you're calling in, please press star nine to raise your hand and star six on your cell phone to get the word. First, we have Adrian from ABG. Please go ahead. You have the word.

Yes, hello. I'd like to start off with a question on the expansion in Hungary and the output you gave on deliveries related to that. Are you able to say anything more specific on when you will go from these validation delivery phase that you're in to commercial scale deliveries?

Yes, these type of large programs always have a lot of validation and it's different steps of validation. So we foresee that we will have validation deliveries during this quarter, next quarter. and the first quarter in 2026. And then somewhere in the second quarter, we will start deliveries to the outside market, to the patients.

Okay, that's very helpful. Thanks. And to follow up on that, do you see any risk related to this contract, given that the customer in question has had a bit weaker development recently than I think most people had expected? I mean, could this have an impact on the full run rate volumes for your contract?

We are happy with our discussions with our customer that we have not mentioned who it is, but we have good discussions and we anticipate this program to start serial deliveries in, as I mentioned, then somewhere in the second quarter of next year and then gradually grow from there according to plan.

Okay, understood. Then on engineered, specifically on the materials business, that declined slightly year on year. How much should we read into that? Is that just the normal quarterly volatility, or are you a bit more cautious on the outlook now compared to sort of last quarter, I guess?

As we did mention, most of that is coming from the automotive side, which is... a bit pressed right now as many areas within automotive and we foresee that going forward the next quarter as well to be in a similar development.

Okay understood and then when you mentioned the efforts on consumer electronics that are actually yielding results in Asia specifically. Does that mean that this Chinese facility that has been on low utilization is back at satisfactory levels now, or are there more improvements here to make?

We have more capacity and our ambition is, of course, to gradually fill that with serial deliveries. But it's been improving and we are gaining new projects. and building up, but it's not fully utilized yet.

Okay, understood. Just a final one from my end, a detail-oriented question regarding this insurance claim of 7 million. Maybe I should know this, but what is that related to and are there any outstanding claims left that could be booked as income going forward?

We had a flooding situation in one of the factories we have in the U.S. This is the financial outcome so far, and it could be that we have some additional money coming from that during the end of this year or the beginning of next year. But it's no major money coming from that left.

In that case, that's all from me, so thank you.

Thank you. Let's move on to Mikael Lassén from D&B Carnegie. Please go ahead, you have the word.

Hi, thanks for taking my question. I have a question about the project in Hungary and the validation delivery. first of all, can clarify what you mean with validation deliveries, what this means in practical terms. Yeah, that's the first one.

Okay. As I mentioned, during ramp-up of these type of very large and complex programs, you have validation of different steps. So you validate the individual component manufacturing, sub-assemblies, and then it has to be validated in the filling site of the customer and so on. So there are A lot of products that need to be tested for different variations of tolerances and so on. And this is what we are running right now. We sell those products and are getting paid for them. So that's normal behavior in this type of programs.

Okay. So is this meaningful in any way or very small revenue that you get right now to understand what will happen in Q4 and Q1?

The sales from these validations is approximately 1% of business area sales during this quarter.

Okay, got it. And then moving on here, could you also talk to us about the EBITDA margin development for the medical solution segment? It has been relatively stable at around 12% plus, two, three quarters now. So what will drive the margins higher, above 12% or well above 12%, which I guess you're targeting?

If we look forward, we do see possibilities in increasing the margin towards the 13% we did have some years back. And One thing that should support that is, of course, the new program ramping up in Hungary. We have commented on that before. And, of course, also moving into higher volumes for some of the expansions we're in right now, adding up the capacity utilization.

Okay, and how is the US side progressing? Or the medical side? Sorry, the new... The medical segment, how are they doing in the US?

They are part of the long-term improvement we have made when it comes to margins, but we would still see the U.S. operations as a possibility to improve margins compared to the rest of the business area.

Okay, excellent.

Thanks a lot. Thank you. And now we'll give the word to Carl Ragnestam from Nordea. Please go ahead. You have the word.

Hello, it's Carl here from Rodea. A question from my side as well here. On the new contract that you're ramping up in Hungary, could you give any flavor on the production efficiency you're seeing right now, potential bottlenecks versus your expectations? And so far, I mean, it's obviously validation volumes, but profitability projections so far, if it meets your previous expectations?

Since it's validation, there is no sort of feedback on yield and those kind of things. Of course, you can look on individual cycle times and they are according to our expectations. But the full yield, it's too early to give any comments on that.

And the production you're ramping up now, is it covering the cost so far? Is it the burden? I guess it's a burden of margins at such early stage, right? Because it contributes 1% to organic growth in medical. What is the EBIT impact, or if any?

It's of course a small EBIT effect, but it is covering its cost right now.

Okay, that's very clear. And on IVD. I'm a bit curious to hear more about what you're seeing there, because we've seen, I mean, as you wrote, we started the year, we saw before that early indications of a recovery followed by declines. So it's been a bit back and forth, at least it is that how I look at it. So how do you view the current recovery in that segment?

Yeah, there is a lot of dynamics behind the IVD as we've been talking about. Of course, the volatility and the supply chain discussions after COVID, but also the change of one customer changing to our deliveries to an end customer instead. So there is a lot of changes, but we look positive on this market segment. We see possibilities, definitely. We see an increase growth opportunity going. So we are very positive, but we have seen, as you mentioned, some back and forth in the delivered volumes.

So you see the growth in IVD to be here to stay for now, at least what you see. And do you see an acceleration from here or what is your feedback from customers? Because it used to be quite a good earnings driver.

Yeah. I think the feedback we get from customers is that it's a long-term growth area. They see that and they are adding new tests into this type of product. So definitely a long-term growth opportunity, but with some volatility still going on in the single deliveries over quarter from quarter.

Okay, that is very clear. And also, maybe you mentioned it, I didn't hear the full call, but in materials, you've seen the sort of weakness in automotive. On the other hand, we've seen telecom, I mean, offsetting it. How do you view the short midterm development here? Because we've seen the deceleration in telecom, if I remember correctly, right, from very favorable comparisons. Do you see it at low single-digit negatives ahead as well, short mid-term, before automotive picks up pace? Or how do you view the trajectory from here?

I think we should see the sequential development for materials, which is very similar as this quarter three in the next quarter. That is the best view we can give. Long term, it is a good growth opportunity for us. But this quarter and also the next quarter, we foresee a bit slower operations in that area.

And when you say sequentially, is it the minus one or is it in absolute numbers or perhaps both? I don't have the comps on top of my head.

I would say in absolute numbers, similar to Q3.

Okay, that's very clear. Thank you.

Thank you.

That concludes the Q&A session here. Thank you very much, Christer and Per-Ola, for presenting here today. And thank you everyone for tuning in to this webcast with Noloto. And I wish you all great rest of the day. Thank you very much. Thank you. Bye-bye.