Nolato AB (publ) ($NOLAB)

[Audio Gap] And it was a little bit stronger on the medical side with 5% and 1% on the engineered side. That summarizes to an EBITA of SEK 260 million. And of course, the EBITDA was strongly affected by currency headwinds as we calculate 7 percentage. We kept our margins on 11% and sustaining them in a good way. And of course, our strong financial position with very good possibilities to execute our acquisition agenda remains. Turning to Page 3, summarizing the Nolato grew. The group consists of 2 business areas, the Medical Solutions at 57% of the total and Engineered Solutions at 43%. Of course, it's 2 different markets. But behind the scenes, we are doing similar things, of course, with some different growth drivers and the different key needed things. But the 2 business areas create synergies by combining them to the customer interface. Then we jump to Page 4, summarizing the first of the Medical Solutions. And here, we can see a 20-year graph of our development and we are, of course, continuous sustainable growth with global expansion as a target. If we look in behind the scenes on Page 5, we summarize the different focused product areas and of course, then we can start with the in vitro diagnostics, which, this quarter, had a good growth and ended up at 18% of the total business area. This therapeutical areas is a long-term growth market that we think it has good potential for the continuous years going ahead. The second one is cardiology ended up also growth, 7% of the total in this area. This is, of course, the area with the toughest quality demands. Then we have pharma packaging decreasing as a total of the -- as a share of the total 11%. And this is an area that we entered into because we wanted to build ourselves strongly into the drug deliveries area. And then, of course, we see the drug delivery increasing from [ 16% to 70% ] of the total. This is a long-term potential with delivery devices for the large molecules within pharma. Then we saw endoscopy and general surgery decreasing as a total of the total group ending up at 20%. We saw some stock changes in that market. And then continuous care, it's a high-volume market building for future. Jumping to Page 6, focusing on the performance first quarter of Medical. As mentioned, we increased the sales with 5% adjusted for currency. And as I mentioned before, we saw growth in vitro diagnostics, higher proportion of new products. We saw a continuous upbeat performance of the drug delivery. We saw, as I mentioned before, surgery contracted due to inventory adjustments and other markets had stable volumes. The margin ended up at 11.8 percentage points. We saw some negative impact from the -- in the quarter from growth in newer products that have not yet reached the planned volumes. And of course, resources for starting up new projects have some negative impact on the margin. The expansion in Hungary linked to the large customer program within the drug delivery systems is proceeding according to plan and validation deliveries was during the quarter according to plan. And late in the second quarter, we expect to have our first commercial volumes in that program. Going to Page 7, on the Engineered Solutions side. And of course, here, we are advancing our high-productivity manufacturing on the global scale adjusting the customer base and growing in new areas. If we look on Page 8, we have the focused different areas here. We saw consumer electronic grow as a total -- share of the total, ending up at 11%. Here, we are doing advanced products for smart homes so strong growth in that area. The automotive was stable at 23% of the total. On the hygienic side, we saw some stock movements, decreasing the total of the -- share of the total to 13% from '15 before. Others were also had some headwinds on the white goods side and also some on the forest equipment. Materials had very strong growth within the quarter. This is, as mentioned, a little bit premium margins and as a share of the total, it was growing from 18% to 21%. Summarizing the business area's first quarter. We saw a 1% adjusted growth, very strong growth for the materials at a full 15% adjusted for currency. We saw, as mentioned before, strong growth in the consumer electronic market, where the smart home products are growing, lower volumes within the hygiene affected by in [indiscernible] as mentioned, and stable volumes for automotive. So the margin ended up at 10.6%, and of course, it was affected by the favorable mix with a higher proportion of materials.

Good afternoon. Per-Ola Holmstrom, CFO and group financial highlights on Page 10. Net sales was in the quarter the 3% growth, ending up at SEK 2,357 billion. Currency headwinds of 7%. Operating profit amounted to SEK 260 million compared to SEK 271 million last year, again, affected by currency. We had an unchanged EBITA margin of 11%. Tax rate was within expected range of 22%. Cash flow from operating activities rose to SEK 225 million compared to SEK 135 million. The change of working capital was lower than last year. Net investments affecting cash flow decreased to SEK 193 million compared to SEK 271 million, mainly because last year included an operating property in Poland of SEK 69 million. Return on capital employed for the last 12 months was 14%. Net financial liabilities in relation to EBITA on a low level, 0.5x, securing flexibility for expansion.

Turning to Page 11 on some development on the sustainable side. We have had a very long-lasting focuses on sustainability, which we feel support our business offer to the market. So it's creating opportunities for us. We have, during 2025, operated all plants with 100% renewable electricity. We have then eliminated Scope 1 and 2 emissions, meaning that the Scope 3 now accounts for 99% of our total carbon dioxide footprint. We have -- also during -- launched very ambitious sustainable targets for 2030 that are [indiscernible] in climate circularity. So it's a very long-term focus, and we are ahead of our competitors and feel that this is gaining market positions and possibilities for us. If we turn to Page 12, focus on the current situation for our business area, first. Of course, we see on the medical side, continued growth strategy, very high market activity, a lot of focus on innovation, sustainability we have in our base, a very broad customer base with very close long-standing customer relationship. We are expanding, so establishment of operations in Malaysia, and this expansion in Poland is ongoing. On the Engineered Solutions side, we are advancing our market positioning, not least in the consumer electronics, and we are on a good way, established positions in new product areas. We see success in new products, new technologies, mainly in data centers that is very positive for the material side, and we are expanding our operations in Malaysia. And on the overall, we have a very good possibility and focus on acquiring and adding new technologies to our portfolio, creating synergies to our customers. Thank you. We are now opening up for questions.

[Operator Instructions] And the first call here is Adrian Gilani from ABG.

I would like to start off on a question since you mentioned data centers in the report, which is probably the hottest theme around right now. I feel I have to ask if you can quantify the exposure you have towards data centers and perhaps how much that part contributed to -- with growth in Q1?

Yes. I would say that it's still very limited numbers in a group perspective. But of course, it's supporting the growth rate very much and it's coming from almost, yes, very limited sales in that area. So it's standing for substantial part of the growth.

Okay. I understand. And then on the sort of, I guess, risk of rising input costs, and I appreciate you move this on to customers with some lag. But just to get a picture of this since you have a lot of petrochemicals on the input cost side, and it's always difficult to track exact prices since there are so many different grades. Can you help us with a rough indication on how much with current price levels, you would expect material costs to rise going forward?

Yes. We have exactly, as you say, exposure to that. And we do see a lot of changes going on right now, and it's a daily change. But we do anticipate that in the near time, we would see an increase of the pricing to us between 5% and 10%. That is the range we do anticipate.

Okay. That's very helpful. And then if I remember my numbers from the last time in 2022 when we had an oil price spike. At the time, I think you said roughly 60% of your total material costs were linked to oil in some way and you had roughly 3- to 6-month lag on moving this forward. Are those rules of thumb still valid? Or have things changed since then?

Yes. I would say that, that is an overestimate of the the fuel impact in our bond. I would say it's more -- if we look on the things that is going on right now and what's increasing substantially, it is more SEK 1.6 billion to SEK 1.7 billion of our cost base that is subject to this 5% to 10% price increase. in the near term scenario. And one thing in addition to that, Adrian, is that, as you say, this is something that we pass on to our customers, and we have been exposed to this from time to time. And we can see that we have a good track record of being able to pass on this to our customers and coming out in the same shape when it comes to margins. But as you say, there is a time lag, and that might be around 3, 4 months that we are affected by not having transferred all of that.

Yes. I understand. And a final one from my end on medical. And you mentioned these new products that aren't quite reaching the planned volumes that you had expected. Can you go into a bit what the reasons are behind this? And if there's any structural issues we should be afraid of or if this is just temporary?

It's -- it should be a little bit [indiscernible] on that. The ramping is, of course, a little bit delayed. But during a normal ramp, you see those lower volumes during a period. So it's not off track, it's more -- the ramp is ongoing and not on profitable volumes yet. So there is no structure, no change in that.

Okay. And anything on why it's slower than expected? Or is that just always an uncertainty? Is it within normal estimate risk, so to say?

I think it's close to according to plan. So it's more linked to the sort of introduction to the final markets.

And the next caller here is the cell phone number that end with [ 1 0 0 8, ] you have the word.

This is Oscar Ronnkvist from SEB. So my first question, just want to continue on Adrian's question on the potential margin pressure in the near term. So first of all, I think you said 3 to 4 months. So I mean, Q2 obviously, will naturally have like a lag effect where you don't have a lot of price increases. Is that how to interpret it. So you should see Q3 more of sort of a normalized effect on the EBITA level?

Yes. I think the timing would be more that the effects during April is very limited, actually, and that we will see a spillover into Q3 instead. So that is more the timing we would see.

All right. And then just also just to clarify the 5% to 10% price increases. How should we interpret it? Is that across the board? Or is that a number sort of -- or a share of your total sales that you're going to boost the 5% to 10% price increases to customers?

The 5% to 10% price increases, that is what we are facing from our suppliers of the actual raw materials, we are buying it by the fuel pricing. And that is an average. It's, of course, different percentages, higher ones, lower ones. And that is our estimated average. We do see going forward the next coming months.

All right. So when you refer to SEK 1.6 billion to SEK 1.7 billion, that would be the plastic raw mats, I suppose, and you're going to increase or that you have an increase of like 5% to 10% and those will be passed through to your customers? Is that how to interpret it?

Right. exactly.

All right. Perfect. Then I just had a question on the GLP-1 ramp-up from late from late Q2. I think you previously mentioned that you were sort of breakeven when you started with the validation sales. So just wondered if you could add some comments to the incremental margin profile of the commercial volume. So will you have a very high drop-through or does cost increase a lot when these commercial volumes are per shipped?

Like we have explained earlier, we don't see any large negative effect going forward. But of course, we won't have the margins expected at more full scale operation. But we don't see that the margins would turn down dramatically based on that start-up. And that project is, of course, one that we're explaining the margin in this Q1 as well because we already have most of the cost base we are going to use to produce that in larger volumes as well. So there is a certain negative effect in the start, but we don't see that to be any substantial negative effects going forward.

Got it. That's helpful. And then just finally, sort of a broad question, I suppose. But given that you have very broad exposure in terms of offering and also geographically. Just want to hear your thoughts on the geopolitical uncertainty. You have this caused a big shift in demand from your customers, which could potentially affect volumes near term? Or do you feel like you're resilient in -- even in the Engineered segment?

It's interesting. We've seen some volatility over time from different segments and markets. Some are, in some periods, a little bit cautious, then again, short time later, they are sort of afraid of some lack of supply, so then they increase. So as an overall, I think it's been volatile but stable underlying, but it could be looking forward. It could also affect maybe single quarters with some stronger or some weaker sales. So there will be some volatility connected to this geopolitical situation.

And then we'll go ahead to the next caller, which is a cell phone number that ends with [ 8 8 6. ]

Can you hear me? Sorry about that.

Yes.

Perfect. It's Anders at Nordea. So I wanted to ask Christer and Per-Ola some questions firstly on sort of the materials exposure that we discussed I mean, with quite solid growth in the quarter, it would be interesting to hear you elaborate a bit more on sort of the durability of this growth. I mean is it mainly a result looking specifically maybe at data centers mainly a result of specific customer programs? Or should we view it as more broad-based exposure in sort of this end market?

Yes. I think it's a good question. And I think it's a situation where we are going into and have been going into new markets for some time, and it's not connected to a single customer. It's a broad growth across different sectors. Of course, we talk a little bit about the data centers, but it's also some defense. It's across different customers and different markets. And we feel that -- of course, it was a very strong growth on a high level this quarter, but we see good potential for continuous growth within this area.

Okay. Very good. And sort of just taking data centers, as an example, are you able to share anything sort of in terms of how many customers you're selling into in that sort of vertical?

We have numerous customer -- numerous different smaller projects that adds up to this.

Okay. In sort of surgery, you mentioned some inventory adjustments, particularly early in the quarter as I understood it, clarify a bit sort of we should view this. If you think we should do this mainly sort of channel inventory normalization? Or I mean, is there any sort of end demand softness here?

No, we think it's volatility in the supply chain still going on.

And why do you kind of -- how do you arrive at that sort of view just so we understand that?

Yes. Of course, we monitor the sort of end market movement and what kind of end products, our deliveries are going into, and then we monitor them. And then we compare that with our deliveries and then we see volatility. So in some period, we are delivering more volumes, then the end market is the sellout of the end market. And in some periods, we are selling less than the end market movements. And then, of course, that is movement in the supply chain.

All right. You're doing your homework. In other words, that means to sort of question that more sort of the rationale. So we understood that comment. Finally, I wanted to ask a bit on sort of you're talking about the IVD growth and sort of newer products taking a larger share. We discussed sort of the [indiscernible] ramp up in in Europe, but with some volumes not yet at commercial levels, I mean, could you break down a bit more what you're seeing not just in terms of the previous discussion, but by end market sort of IVD, drug delivery, surgery, and what needs to happen for the new product ramps to move from sort of margin dilution to supporting the margins over the next couple of quarters. Is it mainly a factor of volumes? Or is there anything else sort of in that ramp-up that's important to consider?

Of course, during the early volumes in the new program, we have some additional cost because we are then, of course, making sure that the quality is working in all levels. So we have some extra cost to make sure that we are not delivering anything out of specification. Then gradually when volumes and time elapses then we can reduce our cost base of producing. And of course, we get some efficiency of volumes. So that's normal thing. And now we have quite large programs that are expected to ramp. So of course, it's hitting in this quarter.

We will now go ahead with the next caller, who is Mikael Laseen from Carnegie.

Yes, can you hear me?

Yes.

Okay. Great. Yes, I also have a follow-up on this surgery market area inventory adjustments. You've had that quite some time. It would be great if you can talk to us a bit more about this volatility and maybe comment on the product pipeline quality and the underlying market growth, what you're seeing there and also your market position in this area to get an understanding of the underlying [indiscernible].

So starting in -- we entered into this market some years ago with the view that there is changes coming in the market more robotic surgery coming and so on and so forth. And that change has been a little bit slower than we expected at that time. But of course, we think that change is something that is positive and that's why we entered. The volatility, it's very long supply chains in the surgical market. And then you can have swings with different inventories in different levels in the supply chain. So it's been more volatile than we expected. And it's -- we foresee that for some time coming as well.

Okay. All right. We have to take [indiscernible], going forward as well. And one thing about the silver input cost that you had struggled with a bit in Q4. How did that develop? And have you taken care of it on the current silver prices?

Yes. I think you could say that it's been handled with a lot of work during the first quarter. And we did see effects of that in the beginning of the quarter. At the end, we do think that most of that has been taken care of either by adjusting pricing or by having a discussion with the customers of changing materials to other metals that are not that involved in the pricing of the silver materials.

Okay. I'm just curious about the materials area. How much is volume and price and mix effects in that 15% growth that you talked about?

Yes. Of course, there are some effects coming from the price effects, but I would say that the larger part of the 15% is definitely coming from volumes.

Okay. Good. And my final one is on CapEx, if you can update us on what to expect for '26 and maybe also for '27?

Yes. We commented that after Q4 being SEK 650 million to SEK 700 million for the full year 2026, we are still at that expectation, so SEK 650 million to SEK 700 million.

Thank you for the questions there. There are all the callers we had, but we have also had a question sent into us. Can you clarify what impact higher input material prices had on Q1 profitability? Also, what magnitude of impact should we expect in Q2 and onwards? And how does the impact differ between engineered and medical?

Yes. We do -- we have explained the maths behind it and our best assumptions. The effect during Q1 were very limited, and it's onward effect, and we did say most of that is during Q2 and some will spillover into Q3 if it stands where it is right now. So I think that is the explanation we can give in uncertain areas.

That was all the questions we had. So thank you [indiscernible] for presenting here today, and thank you all for tuning in and sending in questions and calling in.

Thank you all for your interest in Nolato. Thank you.