Nolato AB (publ) (NOLAB) Earnings Call Transcript & Summary

Hello, and welcome to today's broadcast with Nolato, who will be presenting the financial report for the second quarter of 2026. With us, we have the CEO, Christer Wahlquist; and CFO, Per-Ola Holmstrom. [Operator Instructions] With that said, I hand it over to you, Christer and Per-Ola. The floor is yours.

Thank you, and welcome to the presentation of the second quarter for Nolato Group. Starting on Page 2. We saw a quarter with growth in both business areas with a total growth of 4% currency adjusted with the strongest growth in the Medical business area. This was achieved in a difficult environment, I would say. So sales ended up at -- close to SEK 2.5 billion in the quarter, and that was then 4% adjusted currency growth. The profit EBITA ended up at SEK 247 million, creating a margin of 10.1%. The margin was affected by increased raw material prices and some start-up costs for new programs. Strong cash flow in the quarter ended up at SEK 287 million and as a total, we have a very strong financial position, enabling us to deliver on the intensified acquisition strategy as communicated previously. Turning to Page 3, summing up the group. So Nolato consists of 2 business areas that create synergies across. And both business areas are then working as a development and production partner for leading global customers. On Page 4, we see a summary of Medical Solutions' development over the last 20 years. So we have seen a continuous sustainable growth and built a global expansion. On Page 5, we see a summary of our focused product areas and as mentioned previously, we see growth opportunities across, of course, with some different driving forces, but we see good potentials across the board and we will continue to deliver on the long-term growth of the business area. On Page 6, we summarized up the second quarter for Medical Solutions. And the sales ended up close to SEK 1.4 billion in sales. That is then, of course, a growth of 4% if we adjust for the currency. We saw good development for the in-vitro diagnostic market segment. We saw also continuous growth in the drug delivery systems. And across the other market areas, we saw stable volumes. The EBITA margin ended up at 11.7 percentage we saw some negative impact from both raw material price increase driven by oil prices. And in that sense, we have a time lag before we can adjust to our customers. So we will adjust that going forward. We saw a negative impact in the quarter from start-up of new programs or projects that have not reached the volumes. And that is, of course, part of our -- these projects are a part of supporting our growth targets for the Medical business area. The expansion in Hungary linked to the new customer contract is proceeding according to plan, and we have started commercial volumes produced in the end of the second quarter and after the quarter, we have started deliveries of commercial volumes. We will gradually increase our capacity according to previously announced schedule. Jumping into Engineered Solutions on Page 7. Here, we see also a summary of the last close to 20 years for the business area. And on Page 8, we summarize up the focused product areas for Engineered Solutions. Here in this area, we have four of these areas: consumer electronics, automotive, hygiene and others are sort of similar in the business scope. And then we have the materials part that is a little bit different where we have our own developed material solutions for shielding and thermal management. That area, we saw a strong growth in the quarter. Jumping to Page 9, summarizing the second quarter for Engineered Solutions. We ended up at the sales of close to SEK 1.1 billion in the quarter. And that was a 3% adjusted growth in the quarter. Supporting that was our strong growth for the materials which by itself reached a 19% organic growth in the quarter. We also saw sustained growth in consumer electronics with an increase in smart home products. In the quarter, we also had lower volumes in the hygiene area affected by inventory adjustment and lower market demand. Automotive contracted as expected. Summarizing this, it created a margin of 10.3%, and we saw a negative impact from the price increases, the raw material, similar to the Medical but also a favorable product mix with a higher proportion of materials sales in the quarter.

Good morning, Per-Ola Holmstrom, CFO; and group financial highlights on Page 10. Net sales was SEK 2.454 billion in the quarter, a 4% growth. Less currency headwinds than recent quarters on group level, 1.5%. Operating profit EBITA amounted to SEK 247 million compared to SEK 277 million. The EBITA margin was 10.1% compared to 11.6% and negatively affected mainly by price increases for raw materials, driven by higher oil prices. The effect is estimated to almost SEK 20 million, most part within Engineered. As planned, during the first 6 months, we have had resources ahead of starting production and during ramp-up in the number of projects negatively affecting Medical, estimated to almost SEK 10 million in the quarter. . On group level, a one-off severance cost affected by SEK 6 million in the quarter. Net investments decreased to SEK 133 million compared to SEK 188 million. As planned, most of the CapEx for the Hungarian expansion is paid. And as we have commented earlier, CapEx will be on a lower level going forward, SEK 600 million to SEK 650 million is expected for the full year. Cash flow after investments was then higher SEK 154 million compared to SEK 128 million. Net financial liabilities, excluding pension and lease liabilities totaled SEK 1.055 billion, resulting in net financial liabilities in relation to EBITDA of 0.7x giving flexibility. Return on capital employed decreased to 13.3% compared to 14.2% for full year 2025 as the profitability was slightly lower, and we now have balance sheet loaded for higher speed. Turning to Page 11, focusing on the current situation. If we start with the Medical business area, we have, of course, the continued growth strategy, higher market activity. We feel that across the board. We have built that on our broad customer base with a long-standing close customer relationships. We see that the major client contracts confirm the overall strategy and we have started commercial production at our Hungarian establishment. The establishment of operation in Malaysia and the expansion in Poland is also creating opportunities going forward. On the Engineered Solutions side, we have advanced our market position, not least in the consumer electronics. We have established position in new product areas and focused on innovative and sustainable solutions. We see success in new products and technology areas, mainly data center, that is positive for materials. Of course, the expansion of operations in Malaysia is also supporting the long-term development of Engineered Solutions. And overall, we have a favorable financial position that enables our intensified M&A agenda. We will now open up for questions.

Thank you for that presentation. We now open up for a Q&A session. [Operator Instructions] We'll begin with Adrian from ABG.

Just from my end before moving into the segments, a question on the group costs. Even if we remove the SEK 6 million in the severance pay, the group costs would still have been at a significantly elevated levels compared to your usual run rate. So can you just mention what drove this? And if this is something that will revert in coming quarters?

I would say that if we look on the actual for this quarter and compare with the actual previous quarter last year. I would say last year was at a low level and this year was at a high level. And if you would combine them, I would say that is more the normal level. And by doing that, we have the extra SEK 6 million, as you say, on top of that, and we have had a quarter where our intensified M&A agenda also has had some cost in this quarter. So that is explaining the high number this quarter.

Okay. Understood. And then you mentioned the SEK 20 million impact from the higher input costs. Do you expect to have raised prices to fully offset this already in Q3? Or do you think there could be some lingering effects from higher input costs still in Q3? .

We do see some of these costs also affecting the third quarter. We assess that we have taken 2/3 of that effect in this quarter and the rest will come in the beginning of the third quarter.

Okay. That's very helpful. And then perhaps just a status update on the GLP-1 deliveries in Hungary for -- yes, maybe for the second half of the year now that commercial deliveries are up and running. What sort of ramp-up pace should we expect from here?

As we communicated when we announced this new program, we said that we will have a starting point in second quarter this year and then a gradual increase for some years, so -- and reaching the full volume somewhere in 2029. And then how exactly that will come in, in different quarters. It's very difficult to say because we are, of course, starting the production ramping up and continuously adding new capacity over that period.

I understand. But can you at least help us if it will be sort of lumpy in stages or whether it will be more of a straight line ramp up?

It will be not a straight line, but more you can take a line and then, of course, different quarters will be affected a little bit, but it's more of a line than lumpy jumps.

Okay. Understood. And final one for me, more on a broader note regarding the materials business. Now that you are back to sort of significant growth, is there any sort of capacity cap for this business? And how long can you sustain growth in this business before you need sort of major investments?

This area is light on the investment compared to the rest and it's not big jumps in capacity increases that it's needed. It's more sort of easy on the growth side from the capital side.

Okay. Okay. So no real endpoint of when you need to start investing again. This can grow for quite a while, it sounds like.

Yes. On the material side, it's light on the investments.

Now for our second speaker, we will let the number who ends in 1008.

This is Oscar Ronnkvist, from SEB. So first, just I had a question on the sort of product ramp-up in Medical, which had a drag on. I think you said SEK 10 million. So just wanted to know if you had any comments on the timing? Will that be gone now in Q3? Or should that still be the case with this SEK 10 million drag in the coming, let's say, 1, 2, 3 quarters?