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Welcome to Nolato Q1 Report, 2023.[Operator Instructions]Now I will hand the conference over to the CEO, Christer Wahlquist. Please, go ahead.
Good afternoon, and welcome to the presentation of Nolato's first quarter 2023. This is Christer Wahlquist speaking. I'm starting on Page 2 in the presentation with a summary of the first quarter of Nolato Group.During the quarter, our sales amounted to just shy of SEK 2.5 billion, which is a decrease of approximately 20% if we adjust for currency comparison to the first quarter 2022. Below, we saw a strong growth for our business area Medical Solutions, but lower volumes within our Integrated Solutions business area.The operating profit EBITA amounted to SEK 193 million in comparison to SEK 267 million in the previous quarter. The cash flow amounted to negative SEK 46 million because of an increased working capital requirement, mainly within the Integrated Solutions business area. We have sustained a strong financial position, enabling us to continue with acquisitions for building for the future.On the right part of the page, you will see a graph of our 20-year growth over from Nolato Group going in different phases. First, we were balancing the group and enabling us to have 3 equal size business area. The second step was then balancing the business area Integrated Solutions, building up our EMC business within that. And then over the last years, it's been growth across the different segments.Turning to Page 3, looking into the different 3 business areas we have. Medical Solutions amounted to SEK 1.3 billion approximately being grown steadily over the years. And within this business area, we work as a development and manufacturer of complex product systems for the medical device industry, pharma industry and diagnostics.Integrated Solutions business area, it's the signed development manufacturer of advanced devices for the consumer electronics as well as EMC/Thermal. Industrial Solutions on the SEK 740 million working as development manufacturer of product systems for automotive, hygiene, packaging, garden forest and different industrial segments.Turning to Page 4, Medical Solutions business area. On this slide, you will see a graph of the 20-year development of this business area. It's been a long, stable continuous growth. Approximately half of that growth is organic and approximately half is inorganic, but a good continuous growth for the business area working with global expansions.If we turn to Page 5 and look into the different product areas within Medical Solutions, we have in vitro diagnostics amounting to approximately 15% of the total business area. That is diagnostics products for testing things, take your blood sample and then you test different things. Cardiology are approximately 8% of the business area sales. This is different things for pacemaker industry and different heart surgery and things like that.Then we have the pharma packaging, approximately 13% of the business area. This is a segment where we do liquid and solid packaging for drugs. This business area or this segment is something that we entered into, we saw the development of the drug delivery technology that was coming from both packaging side and the device side. Then we have the Continence Care business and that's different kind of high-volume products for taking care of continence -- incontinence problems in the body.We have the Endoscopy & General Surgery at approximately 22% of the business area. And then we have the drug delivery systems at approximately 14%. So those are then out-injectors, injection system and so on to get the drugs into your body.If we turn to Page 6, looking into the first quarter for Medical Solutions. During the quarter, we saw a strong growth in most areas, giving us a total growth of 13% if we adjust for currency. We saw the IVD sector at a low unchanged level during the quarter. The margin ended up at 10.0% with operating profit of SEK 132 million in the quarter.If we turn to Page 7, looking into the Integrated Solutions business area. In this business area, we are expanding ourselves into new market segments and been doing that for a period of time. And we have seen over the last years, very strong growth for the VHP part of that business. Now we are in a different situation, enabling us to focus on growth on other areas.If we turn to Page 8, looking into the different parts of the Integrated Solutions. On the left-hand side of this picture with the reds are the Consumer Electronics part of this business area. So here, we are doing complex modules. We are doing different kind of speakers and then we have the VHP area, a different kind of in over-earphones, wearables and handheld well-being devices and then smart home and home security. But up till now the VHP has been growing for a long period of time, creating a situation where we have focusing very much on maintaining that growth and the delivering to the customer. But now we are in a position where we can put more emphasize and grow in the other areas, creating a more stable business area long-term.On the right-hand side of this picture, we see the EMC and thermal part of the business, where we are producing different kind of materials and solutions in order to shield electromagnetic influences and taking care of heat distribution from electronic components.If we turn to Page 9, focusing on the first quarter for Integrated Solutions. During this quarter, we saw a decrease of 66% adjusted for currency in the sales numbers. And we saw the Consumer Electronics volumes on a level that was previously announced. And the fact of the decrease is, of course, the change in sourcing strategy from a significant customer, but also lower total volumes for that customer in -- due to the situation with Ukraine -- the situation in Ukraine and Russia.On the other hand, EMCs continued to perform well with sales increasing to SEK 171 million in comparison to SEK 153 million. The margin ended up at 5.3 percentages and there was -- of course, the margin was affected by the lower volumes. So the first quarter ended up with a sales of SEK 414 million and an operating profit of SEK 22 million.If we turn to Page 10, focusing on Industrial Solutions. In this business area, we are on a technology and geographical expansion journey. And if we look on Page 11, we see some of the different product areas. So these are domestic appliances, hygiene product, furniture, different automotive things and garden forest equipment and of course, packaging and other industrial segments.If we then turn to Page 12, focusing on the first quarter for Industrial Solutions, in this quarter, we saw a 7% increase if we adjust for currency. And we saw that the automotive volumes increased and we saw that the supply chain disruptions have less in impact than we've previously seen. We saw also demand for products in consumer discretionary sector slightly lower due to weaker economy. So the first quarter ended up at SEK 740 million in sales and operating profit of SEK 46 million, creating an EBITA margin of 6.2 percentages.
Good afternoon, Per-Ola Holmstrom, presenting group financial highlights on Page 13. Net sales ended up at almost SEK 2.5 billion, which was a 20% decrease adjusted for a currency compared to last year. Operating profit went down from SEK 267 million to SEK 193 millions, giving an EBITA margin of 7.8% compared to 9.3% last year.The cash flow after investments was minus SEK 46 million compared to minus SEK 41 million. We had a situation during this quarter where we built up additional accounts receivables because of leaving the supplier finance solution with one of our main customers. So that is the reason for that. And other areas in the cash flow were more similar to last year. Earnings per share ended up at SEK 0.5 compared to SEK 0.75 last year.If we then turn to Page 14 and look into the current situation per business area, starting with Medical Solutions. We have a maintained growth strategy, lot of focus and emphasis on innovation based on strong customer relationships. On the Integrated Solutions side, we have established position in new product areas. We have a base in a flexible production structure and we see progress in the automotive area that is very positive for the EMC. But overall, we see some geopolitical concerns affecting Integrated Solutions. On the Industrial Solutions side, we have advanced our market positions, lots of emphasis on sustainable solutions, but we see weaker economic conditions.We will now open up for questions.
[Operator Instructions] The next question comes from Carl Ragnerstam from Nordea.
It's Carl here from Nordea. A few questions. Firstly, you often provide guidance for Integrated Solutions in the coming quarter. Is it any specific reason why you don't do this time and should we, therefore, expect quite flattish sequential volumes from Q2 and onwards?
We have normally commented when we have seen larger sequential deviations up and down and this business area has been a more volatile business area. Right now we think it's a more stable situation. And sequentially compared to Q4 last year, the difference is minor. And hence we don't give any more further guidance to the next quarter.
Okay. Very clear. On Medical, you said that IVD was unchanged in the quarter. Would you say that the inventory levels are normalized now? And also should we expect IVD to turn into a positive territory here in the coming few quarters or maybe more stable here at flattish levels?
Yes. I would say that there are still larger than normal stocks in the total market chain within IVD. So it will not be on normal levels. Long term IVD is growing. But due to the pandemic and the situation afterwards, there has been a large buildup that are now sort of gradually moving down, but it's still on a higher level than normal.
But then should we expect it going back to negative growth territory again to normalize inventory levels, meaning that the neutral level in Q1 is a bit of a one-off or is it more flattish from here as well or...
No. I would say we don't expect it to decrease from this level, but this level is as a total volume in the world is less than the consumption. So the stocks are sort of decreased during the first quarter.
Okay. Very clear. And I mean, looking at the Industrial Solutions here with a 7% organic growth, more stable automotive production, less or maybe no raw material headwinds. I'm a bit curious to a more what's holding back margins here? I mean, is it the mix effect with the consumer segment being more profitable than automotive or how should we look at it?
I would say the margin, the positive sequential margin effect come from mainly a more effective production setup during this quarter and that is mainly within automotive, where we have seen disruptions of -- based on shortages for components. So that is the main reason. And then we still have some positive effects coming from further price increases in this quarter as well. So these 2 have mainly had the positive effect.
And the final one from my side is maybe looking at integrated margins, it's continuing to slide sequentially here as well as year-over-year. Are you implementing any measures to start restoring it? I mean, I guess you might have quite massive overcapacity in heated tobacco currently. So what is sort of the plan? Are you planning to take on more similar volumes to bring up capacity or is it to keep the current capacity and rather try to cross-sell into other similar segments, but maybe not in heated tobacco?
Yes. I think the answer to that is a combination. We feel that we have a very good skill set within our Integrated Solutions business area. And we see that there are good opportunities within other areas that we have identified and that we are working on. And of course, we are taking down cost, but we would like to maintain our cutting-edge technology to make sure that we can build a situation where we have more customers and more diversified type of products in the production.But that takes time. And as we explained during the strong growth of the VHP, it took all our energy in order to maintain that growth. And we saw and knew that there will be a situation where the customer will have parallel sources and that day has come. And it's an opportunity for us to sort of balance the business area.
But for you to take on or win new projects within, I guess, the consumer-related area in a period of a weakening consumer maybe globally, is it a lot of projects out there or is it a bit of a struggle compared when you choose to take on heated tobacco? I guess it was a better situation to sort of win the product?
Yes. I would rather explain it like the VHP was an extraordinary situation with this new market and a very, very strong growth. We don't expect that to happen as we explained when it happened. We rather build with normal growing customers step by step.
The next question comes from Karl Noren from SEB.
A couple of questions here. We can start with working capital. I'm just wondering if the current levels are sort of the new normal or is there more to come in terms of net working capital increases going forward or have we seen all of this in the quarter?
I would say that the more -- the larger changes we have seen lately that has been, so to say. And during this quarter, we have built the accounts receivables natural to that situation. So it should be on a more stable level. Of course, if and when we grow, that will drive some additional working capital in money, so to say. But that is, of course, natural.
Okay. Great. And then a question on pricing, you state now that pricing is a lower contributor to the sales growth in both Medical and Integrated -- or in Medical and Industrial. But at average, could you give any sort of split on how much prices in both Medical and Industrial or some sort of guidance there would benefit?
Price is the smaller part of the growth in both areas. So it's -- the growth is coming from very much re-growth so to say in both areas.
And then a follow-up on Medical then. So it looks if diagnostics were flattish, I guess the [ elective ] side is performing really well, as we've seen in many other [indiscernible] companies, is that correct? Or do you see increasing volumes there?
On the surgical side, we see growth, but we see growth across most areas except the IVD.
Okay. That's great. And then just a question on Industrial demand there. We are back to organic growth again after declining in Q4. Would you say that the decline in Q4 was mainly due to the -- or sounds like was it only that towards supply chain disturbances among the automotive customers and that was now -- so they stabilized a bit. So is this a level to expect going forward in the Industrial side, do you think, if we assume that there are no additional supply chain disturbances, so to say?
We -- I think you could see it like we had a positive effect in this quarter when that happens, so to say. And we had a troublesome period in the beginning of last year. So from that, it was driving the growth in this quarter. Going forward, the world is, of course, a bit uncertain in all areas. And it's hard to say where that is turning going forward with the Industrial volumes.
The next question comes from Johan Skoglund from DNB Markets.
So interesting to see continued growth in EMC/Thermal. It's now a sizable part of Integrated Solutions. So out of the growth we saw year-over-year, are you able to quantify how much is demand, price or volume?
It's very much volumes. And as we said, it's very much coming from the automotive part of EMC.
Okay. And on a similar subject, your acquisition of P&P Technology here in Q2, are you able to provide some more color on the strategic rationale? It's quite small. Is this more of a technology acquisition? And can you say anything about the company's profitability?
Yes. The rationale behind that is twofold. It's technologies, some added technology to our portfolio, but it's also relationship with interesting customers.
And profitability-wise, the company has a good profitability, not really the level we have, but that has not been the main driver for this acquisition. As Christer mentioned, it's a good profitability.
[Operator Instructions] There are no more questions at this time. So I hand the conference back to the speakers for any closing comments.
I would just like to thank you for your interest in Nolato and the presentation of our first quarter, and I wish you a great rest of your day. Thank you.