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Nolato AB
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Hello, and welcome to the Nolato AB Q4 Report for 2019. [Operator Instructions] Today, I'm pleased to present Christer Wahlquist, the CEO; and Per-Ola Holmström, the CFO. Please go ahead with your meeting.
Thank you, and welcome to Nulato's presentation of the fourth Quarter 2019. This is Christer Wahlquist speaking. I will start on Page 2 in the presentation deck. So to summarize, it's -- the fourth quarter on the group level. We had a good increase of sales and amounted up to -- close to SEK 2.3 billion that is adjusted for currency, an increase of sales of 22%. We saw, during the quarter, good performance by all our business areas and a very strong growth for Integrated Solutions. The operating profit during the quarter rose to SEK 271 million compared with SEK 214 million, if we exclude the nonrecurring items of SEK 22 million. We saw positive earnings performance by all business areas. We had a strong margin of 11.8%, excluding the nonrecurring items. We had a very, very strong cash flow during the quarter of SEK 601 million, excluding acquisition of Ja-Bar. Of course, this is a strong effect during the fourth quarter and should be looked as -- on the total year. Per-Ola will come back to that. We have a continued solid financial performance. Then I'm turning to Page 3 and focusing on the full year 2019. We had a strong finishing up of the year following a tentative start and the earnings per share rose to SEK 27.2, which is the highest in our history so far, if we exclude the nonrecurring items. The financial position is strong. We have net financial assets of SEK 666 million, enabling us to be ready for M&A activities, of course. And we have, during the last month, sensed an increased sell-side activity. And as you know, we have a long-term focus in the M&A field and are mainly focused on the U.S. The Board of Directors has proposed a dividend for the year raised by 4% to -- and amounting to SEK 14.5 per share, and that is a payout ratio of 55% of profits. Turning to Page 4. Summarizing up the group with our 3 business areas that are in common, even though they are different markets. We have corporate responsibility. We used the same material across, and we are working a solution-oriented development partner across all business areas. And of course, we have the same production technology across. Jumping into Medical on Page 5. We concluded the last 2019, another record year. I think it's number 20, 20 years of records. So I'm pleased of that.On Page 6, we showed 2 parts of the Medical Solutions business area. So the Medical Device is the largest portion of the Medical business. And that's mainly devices and active things that are supporting your well-being and getting drugs into your body and so on. And we have the smaller part called Pharma Packaging, which is packing for drugs. It could be solid drugs, it could be liquid drugs, but it's more containers for that.Turning to Page 7, jumping into Medical Solutions fourth quarter. We saw an 8% increase in sales, but if we adjust for the currency effect, it amounted to 4%. We saw a volume increase on -- both on the Medical Device and the Pharma Packaging side. Previous year, contained high sales of development work and production equipment as we previously explained. So the comparison is a little bit off on that. The margin, a sustained healthy margin of 12.8% within our long-term targets. On Page 8, we see the presentation of the Integrated Solutions. This quarter, we amounted to -- close to SEK 1.1 billion in sales. And on Page 9, you will see the split of the business area in the 2 different segments. The first and the largest portion is the Consumer Electronics, consisting of different type of devices containing -- mostly containing electronics and high-class and high finished products. And the smaller portion of the business area is the EMC and Thermal. In this area we use working with shieldling solutions and heat distribution products for electronic devices. And in this part, we have made latest acquisition, the Ja-Bar, going into that part of the business area. On Page 10, we look -- dive into the fourth quarter of the integrated solution. We had an -- a very strong increase of sales amounting to 56%, but if we adjust that for currency effects, it amounts to 45%. During the quarter, the Heating Devices delivered new product variances due to buildup of inventory by the customer. We saw -- we had low volumes in the VHP segment the previous year due to the inventory adjustment. During the quarter, we also saw some weak growth for the EMC, but positive mobile phone performance. The margin amounted to 13.4%. It's a -- based on high production efficiency and a very good utilization capacity, and the strong combination of those 2 gave the strong margin. We have consolidated the U.S.-based Ja-Bar from 18th of December. Currently, in the Integrated Solutions, we have had a situation where a lot of our Chinese facilities has been -- production stopped due to the coronavirus. We had a production start today, not on full capacity yet, but it's been closed for approximately 10 days more than planned. And this will, of course, affect the Q1 numbers. But our -- we really believe that these volumes will be sort of evened out during the year, so it will not have a yearly effect, only a quarterly effect.If we then turn to Page 11, we see the development of our Industrial Solutions business. We amounted to 530 -- SEK 573 million in this quarter. It was a strong growth. I will come back to the details about that, but if we look on Page 12, we see the split of the Industrial Solutions business area, consisting of General Industry and Automotive, in which the General Industry is the largest portion of this business area.On Page 13, we will go into details about the fourth quarter of Industrial. We had a 13% increase in sales, but if we adjust that for currency, it amounted to 10%, so it was strong. However, part of that growth, approximately half of it, was due to a nonrecurring billings of -- due to a ramp of a new product. Over -- across the business, we had stable volumes during the quarter. Our margin ended up at 8.2% compared to 7.7% in the comparison quarter 2018. We had, during the quarter, impact of start-up costs for the new customer projects, and we estimate that to be approximately 0.8% effect on the margin.
Hello, this is Per-Ola Holmström commenting group financial highlights on Page 14. You can see a lot of detailed numbers for certain financial headlines. The Q4 numbers on the left side and the full year numbers on the right side. The net sales increased with 22% if we take away the currency effects, meaning SEK 2.3 billion almost in sales compared to almost SEK 1.8 billion last year. The EBITDA number this year is SEK 249 million compared to SEK 214 million. However, all numbers on this page include the onetime nonrecurring item of SEK 22 million. If we do exclude that, the EBITDA number is SEK 271 million. The SEK 22 million in nonrecurring cost is connected to cost for one site -- closing down one site in U.K., as we announced in January. There will be additional cost in Q1 of about SEK 13 million from this expected closing down cost of that site. So SEK 22 million this quarter and SEK 13 million in Q1 2020. The tax rate is 18% this quarter. We had some positive effects, some smaller ones on nonrecurring items. We did see a lower tax rate in Switzerland, compared to last year, and the best expectations for next year or this year, 2020 is between 19 and 20 percentages.The cash flow was very strong in this quarter. I would say the quarter is maybe not so good to compare with. I would prefer the full year number, SEK 800 million. The increase compared to last year, the SEK 593 million is having decreased CapEx from SEK 452 million to SEK 360 million. 2019, we also did see less need of working capital compared to 2018.The quarter was affected by high sales numbers in the beginning of the quarter, and with the mix -- with a lot of sales having very short credit days. That meant that we could cash out most of the sales, the high-volume sales in the beginning of the quarter, during this quarter in our cash. And at the same time, we had higher credit days in our accounts payables, giving us a good cash flow, of course, from the sales in this quarter. That will, of course, not happen every quarter, but that was the fact during this quarter. The CapEx, SEK 360 million, we expect a similar CapEx during 2020, maybe some millions more, but in that level. Earnings per share, SEK 26.60. Excluding nonrecurring items, that is SEK 27.20.We had a strong financial position at the end of the year. The equity/assets ratio ended up 48%, and we had net financial assets if we exclude pension liabilities and if we exclude lease liabilities of SEK 666 million compared to SEK 341 million last year. On Page 15, we have a 5-year summary of our financial targets. Starting with EBITDA margin. We ended with 11.3 percentages. All of those financial targets should be seen during a business cycle at that time. The EBITDA margin has been above our target of 10% during this time period of 5 years. And it has, of course, been a good business cycle during most of these periods. The cash conversion is a target having 75% of our EBIT results in cash flow after investments and after working capital need. We ended up with 88% this year, and that was the only year during this time period we did reach our target. We have instead been creating possibilities for our good growth during this time period, and -- with the working capital need and high CapEx numbers to cope with that, we haven't been able to reach the target, except for this last year. The strong balance sheet, giving us 48% in equity/assets ratio well above the target of 35%.
Turning to Page 16 and focusing on the current situation by business area. If we start with the Medical Solutions, we have a maintained growth strategy, lot of focus on innovation and very strong customer relationships. Within the Integrated Solutions, we have established new -- a position in the new product areas. We see continued strong position within the EMC. We have a flexible production structure, but we've also seen disruptions as a result of the coronavirus.In Industrial Solutions, we have advanced our market positions. We see that the efficiency measures taken and gradually having an effect. And we see indications of slowdown in the economy but stable volumes.Now, we're open for questions.
[Operator Instructions] Our first question comes from the line of Carl Ragnerstam of Nordea.
It's Carl here from Nordea. First of all, can you give an indication of how much of Integrated Solutions volumes that sort of relates to inventory buildups? And how should we look at that going into Q1? Should we expect still continued high levels?
We don't have the full picture of what is sell-through for our customer and what is not. We, however, base our statement that we believe the sales is higher than what the end consumer is buying from these products. And of course, going into Q1, there are a couple of things to consider. We have concluded that there is a certain inventory buildup this quarter with the new products than, of course, in the first quarter 2020. That quarter is containing the Chinese New Year and then, of course, the situation with the coronavirus, which has to be considered looking at Q1.
Okay, perfect. And I mean in terms of the coronavirus, can you -- I mean, I guess, it will impact both Integrated and Medical Solutions because you have production in Medical in China as well, right?
The impact that we see will be on the Integrated Solutions. Medical, production in China, it's a very small portion of the total and will not be seen in the total numbers. But on the Integrated side, we will see an impact, definitely.
Okay, perfect. And also in terms of Medical Solutions. I mean your previous guidance going into the quarter was -- or implied more or less negative organic growth for this segment in the quarter. I mean can you explain what happened during the quarter that maybe surprised you? I mean there's quite a difference between negative organic growth and mid-single digits.
I think we explained it previously that we would see the second half of 2019 in comparison to second half of 2018 as flat or something like that. So that's sort of the communication we had previously. But we had strong performance in the medical field, but it's not that big of a deal. It's -- yes. More -- how many production days and there is the delivery goals on this side or the other side of the quarter end.
Okay. A final one for me. You also talked about new contract burdening Industrial Solutions margins by 100 basis points. Can you give us any idea what type of project it is as well as the size of it?
During this quarter, we saw an increased size due to the onetime sales. And the product is with an existing customer, but it's a new product, and it's in the General Industry area.
Our next question comes from the line of Oskar Vikström of ABG Sundal Collier.
Just -- I have some follow-up questions on the heating products. And I was thinking a bit about the old-generation products. Obviously, you saw volumes here as well that drove the margin and so forth. What is the outlook for these type of products? I think, previously, you mentioned that progressively, the new products will switch with the old ones and you wouldn't have this sort of inventory build-up situation. But could we -- could you just get an update on how you view the future of the old-generation products?
The old-generation products, they will continue to decrease going forward. And that won't be very much left of those in the coming quarters. Still, there was -- a part of those during the last quarter of 2019. And that is sort of the effect in some of the markets where the new ones wasn't released or launched, and mainly, of course, in the beginning of Q4.
Yes. Okay. And so going forward, the margin here -- so you said the margin benefited from this because you have a high-efficiency on them. What's the situation with the new-generation products? Do you think you will get these to the same sort of profitability? Or will that take longer? Or how should we view the margin in the -- for the heating products going forward?
I think you should view the margin within Integrated Solutions that we had a margin situation this fourth quarter of 13.4%, and we comment that, that is a high number. It is high compared to most of the quarters we have seen with the heating products in the quarters during quite some time, and that is what we are explaining with the comments we had in the report. And of course, as -- the part of those older products will go down to almost 0 quite quickly. We won't see them affecting upwards as we did in those 2 last quarters this year -- or in 2019.
Understood. And just one quick question on Medical. So, obviously, you guided for this flat growth in H2 2019. Could you say anything just about 2020? Is this -- will this be in like normal situations from a historical perspective? Or do you have any comps or anything that we should consider into 2020 that are difficult or...
Medical, we have been guiding the Medical that we should have a growth above market. And that's our long-term target, and that should be viewed over a business cycle or something. And I think our ambition is the same. And when things are ramping and not ramping will affect quarterly, but that the long-term target stays.
Our next question comes from the line of Mika Laséen of Carnegie.
A couple of questions. First of all, regarding the Industrial segment's margin and the negative impact from this ramp-up, will this be sort of a Q4 phenomenon? Can we expect an impact also going forward, gradually decreasing, of course? Can you please explain that?
We think that, that is a Q4 situation.
Okay, got it. And what about the general efficiency for that segment? Do you believe that you can come back to 10%? Or has something happened more of a structural nature?
Our ambition is to come back to the 10%. That's what we are working for, and we've seen gradual improvements, even though we had this onetime thing. But that's definitely a step-by-step our ambition to come back to the 10%.
Okay. And can you also talk about the general demand for the Industrial segment and the many customer groups that you have on the situation that you see right now?
Yes. I think we explained that during the -- our current situation. And we see, across customers, a stable demand. We have also then, of course, taken some market share with this new project and so on. But we see stable volumes going forward.
Any weakness -- weak areas or particular strong areas that you can highlight?
Not particular. No.
Okay. And then -- so going back to this Integrated Solutions situation with the corona effect. Can you be a bit more specific maybe what you have experienced so far in Q1? And I mean the New Year effect and things like that helped part of it? Because, I mean, the swing factor is quite large, potentially?
Yes. We have seen, first, the new year's closedown, the Chinese New Year's, but that was planned. And after that, we had additional 10 production days where we intended to produce, but we had to close down due to the coronavirus situation. Today, we started our production. We got approval. You had to ask for approvals from authorities. And our estimation is that approximately half of the factories in China got that approval. We did get it and we started. Of course, there is still situation where you lack operators because a lot of people have not been able to move after the Chinese New Year and then the corona situation. So are -- we are not running our facility at full speed yet.
Okay. So what will happen with the market demand and your orders that will just take longer to deliver? Or will it be a catch-up effect in Q2 maybe? What do you think would happen here?
I think, first, we have to secure long-term components. It could be lack of some components. If we -- if this affects some of our parts where we need components or parts into our production. We have secured that for a period of time. But of course, after that, we need the supply chain to go on. But looking at the end-market demand, I think it will not be affected from this situation. So the end-market demand is the same. So it will only be movement of volumes from quarter to quarter. And depending on how fast we can get the supply chain going and the operators going, it depends on where we can catch up. But we believe on the year, 2020, we will not see an effect of this.
Okay. Can you explain that the last part you mentioned about any effect on full year?
What I mean, the sales, the anticipated sales volumes for Integrated Solutions. If we look on 2020, from our perspective, it will be -- as we expected before this situation, it will not affect the end-market need of our products.
Okay. Yes, okay, of course. And in total, this change from the old version of the product or Heating Devices to new one. Can you explain the difference for you when you do this transition?
It's -- I would say, from our perspective, the production is very similar. It's, of course, different solutions and new products. But it's -- I would say, it's just changing a model or something for us.
Yes. And you have more models right now, I guess, than you had before?
Yes, we have been adding models.
Okay. Do you have all the new products that this customer has launched? Or only a couple of them? Or how does that work?
Yes, we have a position where all products in this area that our customer is selling is produced by us.
Okay. Do you have any welding products in your product portfolio right now? Or is it only heating?
It's Heating Devices.
[Operator Instructions] As there are no further questions, please go ahead, speakers.
Thank you for participating in the presentation of Nolato's fourth quarter, and I wish you all a good day. Thank you.