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

Hello, welcome to today's presentation with Nolato. We have Anders Bjorklund, President and CEO; and Per-Ola Holmstrom, CFO, presenting their interim report for the third quarter of 2026. [Operator Instructions] And with that said, I hand over to you guys, and I'll be back when it's time for the Q&A. Go ahead.

Thank you anil. Okay. My name is Anders Bjorklund, and I am the CEO of Nolato since mid-July this year. I've working for Nolato now for almost 4 years, but previously heading up the Engineered Solutions business area. Before joining Nolato, I was working for Sandvik, and I was also part of the management team of the IPO of Alleima. And together with me here today, on my right-hand side, I have Per-Ola Holmstrom, the CFO of Nolato. Then turning into Page #2, the summary of Nolato Group's third quarter. I would say it is a solid performance in the quarter. Our sales rose by 7%, up to SEK 2.5 billion compared to SEK 2.342 billion last year. If we adjust for currency and the two made acquisitions, we end up at a growth rate of 3%. What is very encouraging is that the Medical Solutions business area actually grew with 9%. But on the contrary, we had some headwinds in the Engineered Solutions business area, but we will come back to that a little bit later. We have finalized two acquisitions during the quarter, and they are consolidated into our numbers as of September 1 and contributed SEK 56 million. Our operating profit ended up at SEK 254 million compared to SEK 281 million last year. And if you adjust those numbers, we ended up to SEK 262 million quarter 3 this year and SEK 274 million last year. Our margin -- our adjusted EBITDA margin ended up at 10.5% compared to 11.7% last year. But as you know, we have invested in future growth programs in the medical area, and that has now impacted the margin for some quarters, and it has also impacted this quarter. The investment that I'm talking about is primarily related to our programs in Hungary, but also a couple of programs in the United States. The cash flow from our operating activities increased to SEK 332 million compared to SEK 301 million, and that is primarily due to less capital investments. We still have, after the acquisitions, strong financial positions with net liabilities compared to EBITDA of 1.0x compared to 0.5x. Then turning into Page #3 and continue to talk about the acquisitions that we have made. We have made two strategic acquisitions during the quarter, Nolato Qualtech and Nolato Unitron. If we start off with Nolato Qualtech and describe them briefly. Nolato Qualtech brings a business that is located in a medical cluster in Galway in Ireland. Their prime customers are within the medical area, but they are also strong in the defense area. Looking at the Unitron business, which is located in three locations, one in Holland, one in Belgium and one in the United States, is primarily a development company, which is engaging with the customers in early concept studies, and it's a perfect fit into our offering of volume production that we have today. Altogether, these two acquisitions bring around SEK 600 million into the group sales. But I also would like to highlight actually that after the closure of the third quarter, 1st of October, we also finalized the divestment of our subsidiary in Romania, which has approximately SEK 70 million in sales. All these three transactions are a step in our portfolio optimization that we are doing to enable our strategy implementation for future growth. Going in then to Page #4, which is an overview of the Nolato Group, which consists then of two business areas: Medical Solutions and Engineered Solutions. If we then dig a little bit deeper into the numbers of Medical Solutions first. Medical Solutions is operating in seven different product areas. And during this quarter, Drug Delivery has contributed to a good part of the growth of the business area. But we also see some good growth in the IVD area, in the cardiology area, but we also see a good growth actually in the pharma packaging area. Going into the page #6 then, we look into the Medical Solutions performance during the quarter. And I must say that I'm very satisfied with the growth rate of the quarter for Medical. The sales rose by 12%, amounting to SEK 1.469 billion compared to SEK 1.311 billion last year. If we adjust it for currency and the two made acquisitions, it is still a growth of a full 9%, which is very encouraging. As we talked about earlier, the Drug Delivery supported good in this area, but also some other segments contributed well. If we look into the EBITA margin for Medical Solutions, it ended up at 11.3% compared to 12.1%. And that is due to earlier talked about these programs that we have and also some headwinds in material costs. I really would like to emphasize that I'm very pleased with the strengthening of our offering through our two made acquisitions in the quarter. It is actually two very important building blocks in our way to become more of a complete global solution provider into the medical industry. Unitron will actually enable us to deliver a complete medical product and a complete medical product solution with both electromechanical devices and an end-to-end manufacturing of complete products. Looking into the second business area, Engineered Solutions at Page #7. Engineered Solutions is operating in five different product areas. And what is really encouraging during this quarter is that our material business grows significantly. The share of the total sales for Materials is now up to 23% compared to 18% last year. We also see a growth in the other business area, but that is mainly driven by the acquisition of Nolato Qualtech in Ireland. We see good contribution in growth from Consumer Electronics. On the contrary, we see some strong headwinds in the automotive area, where the sales of automotive has now dropped down to 17% compared to 22% last year for the automotive sector. And now actually, automotive is only 7% of the total group sales. Turning into page #8 and looking into Engineered Solutions more in detail. The total sales amounted to SEK 1,040 million compared to SEK 1,035 million, which is actually adjusted for currency and acquisition, a decrease of 3%, but it is a very strong performance from the team within the Materials business, which now has an impressive increase of 27% in the quarter. And it is actually all three areas where they are operating that is contributing to this growth. It is the Aerospace, it is the Automotive, and it is the Telecom segment. The Consumer Electronics segment, we have stable volumes. In the Hygiene segment, we have some lower volumes, and they are affected with continued inventory adjustments. But we also see a sequential improvement in the -- for the volumes in the quarter. Looking at the automotive area, we saw a sharp decline with lower demand. It is primarily related to model changes among our customers. But I must say that we also are mitigating our cost to protect the margin in a good way here. The EBITA margin ended up at 10.8% compared to 11% last year. I also here would like to actually highlight the divestment that we did at the first day of quarter 4 of our Romanian company. It is a step towards focusing Engineered Solutions into strategic selected segments that we have pinpointed. So by that, I hand over to you, Per-Ola.

Good morning. Per-Ola Holmstrom, CFO, and group financial highlights on Page 9. Net sales was SEK 2.5 billion, which is a 3% organic growth, excluding currency and acquisitions. The adjusted EBITA margin was 10.5% compared to 11.7% last year. The negative gap in margin is mainly affected and explained by ramp-up of larger projects within Medical and remaining raw material lag, and also automotive volumes and model changes at customers within Engineered Solutions. The effective tax rate is normalized to around 23%. Cash flow from operating activities is favorable, being SEK 332 million compared to SEK 301 million. And net investments, excluding the acquisitions made, was SEK 191 million, which is similar to Q3 last year. CapEx for the full year 2026 is expected to be SEK 600 million to SEK 650 million, in line with the estimation we made after Q2. Last year, 2025, it was SEK 788 million. So a lower number this year is expected as planned. The net financial liabilities in relation to EBITDA, even after paid-out dividend in Q2 and two acquisitions in Q3, still on a low level, 1.0x in relation to EBITDA, and a sustained strong financial position for further investments and acquisitions.

Thank you, Per-Ola. Then turning into Page #10, our current trading. If we look then on Medical Solutions, I would like to highlight that we continue our growth strategy, and we see a high market activity in several of the regions in the world. We also have a broad customer base with long-standing close customer relationships. And we have, with these two acquisitions, strengthened those relationships even further, and we have broadened the customer base even more. Looking into Engineered Solutions, we see clear advanced market positions in the Consumer Electronics area and as described before, not at least within the Materials area of Engineered Solutions. So all in all, I would say that Nolato is well positioned with our offering in three different continents. And we have a favorable financial position that will enable us to intensify our M&A agenda going forward. Thank you.

[Operator Instructions] We will begin with a number, whose telephone number ends in 1008.

[indiscernible] The first one, I would just like to hear about the sort of temporary costs that we do not adjust for like the oil price impact, et cetera. You said it was smaller than in Q2, also any medical ramp-up costs, et cetera. Could you say anything on how much cost you had related to one-offs that you don't adjust for?

Yes, I can comment on those. And the raw material pricing with the background in the oil prices, that is coming in, in this quarter as expected. We commented after the Q2 report that we expect SEK 10 million remaining in Q3, and that was very close to that number. The main part of that is within Engineered. So that is similar to the Q2 situation. And then, of course, we have the ramp-up of larger projects in Hungary and the U.S. And that is the main cost that you're referring to within Medical. That explains almost all of the margin difference compared to Q3 last year. And then we have the automotive effect within Engineered in addition to the raw material pricing. And that is pretty much the rest of the additional cost we have in that business area. In the other direction, we have a larger mix of Materials compared to the rest of Engineered, which is supporting in the other direction. So that is pretty much the situation. And also within the Engineered business area, those three explanations, they sort of explain most of the gap between the margin we had in Q2 -- Q3 this year and Q3 last year.

Perfect. That's very appreciated. Based on -- I think especially with the raw mats, I mean, the oil price hasn't really come down a lot. So based on the current spot rates, I mean, do you see still that it should level out in Q4 based on the price increases, et cetera? Or do you still see a small headwind in Q4?

No, we don't expect a headwind in Q4 if the present situation is remaining. So we have taken the lag effect in Q2 and Q3 that we expected, and that is finalized then if we don't run into new headwinds going forward.

Perfect. And any comments on the product ramp-up? Should that fade into Q4? Or should we expect that to continue a bit in Q4 as well?

I can comment that as well. It's something that we expect to continue going forward some quarters, but we do expect it's getting better and better. So that is the estimation we make.

I was wondering also on the automotive outlook for Q4. So you said that driven by model changes, now it's temporarily a bit slower in automotive. And I think the underlying growth was like 2% if we exclude automotive. What was the outlook for Q4? How temporary is this effect in Q3?

I would say that the automotive headwind will remain in the fourth quarter for us. So how it looks further on, I have a hard time to say. But the headwind for the Automotive segment will remain in the fourth quarter.

Great. Then looking at the P&L, this is very nitty-gritty, but look at the other income and expenses net item line in the P&L was minus SEK 12 million, differs a bit from the history. I believe that SEK 8 million of those are related to M&A. Is there any other temporary impacts such as balance sheet revaluations, et cetera?

No, I would say that most of the other millions remaining is mainly currency effects in different ways. So it's a net of currency, the most part of that.

All right. So maybe SEK 4 million or something in some temporary negative effects?

Yes, that's right.

Perfect. I just have one more short question. But when you say 27% growth in Materials, you say that it's on a currency-adjusted basis and not organic. I just wondered if Unitron or [ M&M ] contributed anything to the Materials segment or if 27% is fully organic?

It is fully organic. Unitron and Qualtech is not included at all in the Materials business.