Hello, welcome to the Nolato Q2 Report 2020. Throughout the call, all participants will be in silent-only mode, and after that, there will be a question and answer section. Today, I'm pleased to present Christer Wahlquist, CEO, and Per-Ola Holmström, CFO. Please go ahead with your meeting. Thank you.
Hello and welcome everybody to the presentation of Nolato's second quarter 2020. This is Christer Wahlquist speaking, and I have Per-Ola here next to me. I hope you have the presentation in front of you, and then I would like to start on page two with summarizing up the second quarter for the group. We had a record quarter with the sales of SEK 2.3 billion, and that was a sales increase by a substantial 12% in the quarter. We saw particular strong growth for the Medical Solutions business area and Integrated Solutions business area. Our operating profit, EBITA, rose to SEK 269 million compared to SEK 233 the second quarter 2019. We saw strong margins for the Medical Solutions and the Integrated Solutions business area. The EBITA margin for the group was 11.7%, and we had an excellent cash flow of SEK 685 million during the quarter.
It was boosted by some temporary effects that Per-Ola will go into later on in this presentation. We ended the quarter with a very strong financial position with net assets of SEK 1 billion 245 million. That is, of course, enabling us to execute our strategy, which involve growing organically with existing customers as well as our acquisition strategy going forward. I'm turning to page three, summarizing the three business areas for the group, and the group consists of the well-balanced group with three strong legs, creating synergies from the different markets that we are operating on. Of course, we are sharing technology behind the scenes and giving that back to the different business areas, creating synergies for our customer. Jumping into Medical Solutions business area on page four, we are executing our global expansion strategy.
Of course, you can see here our 20-year growth of this business area, and that is continuing in this quarter. On page five, you see two different divisions in the business area. The medical device is the largest portion of the business area, doing customized design work and production for our global customers. We have the smaller portion, the pharma packaging, which consists of liquid and solid drug containers for large pharma customers. On page six, we summarize the second quarter for Medical Solutions. We saw a currency-adjusted growth of 9% in the quarter. We saw strong growth in our production volumes, and we saw high demand in segments such as diagnostic and respiratory aids, of course, driven by the high demand from the COVID-19.
We also saw some lower volumes in the surgical portion of the business with the delayed surgeries on the global scene based on the corona COVID-19 situation. The EBITA margin ended up at 14.3%, very strong, and that was built up by high volumes and positive sales mix. For the quarter, it ended up at the sales of SEK 700 million and an operating profit of SEK 100 million. Turning to page seven with the Integrated Solutions business area. This business area is currently expanding into new market segments, and we have executed that strategy for the last couple of years in a very good manner. The business area is consisting of two segments on page eight. The consumer electronic being the largest portion, where we work with the Vaporiser Heating Products, connected Wi-Fi systems, and wearables and different mobile phones.
The smaller portion of that is the EMC thermal, creating shielding and thermal solutions for electromagnetic influences. That was where we late last year had the latest acquisition, the Ja-Bar. If we then turn to page nine, summarizing up the Integrated Solutions second quarter, we saw a substantial growth of 32%. Of course, high demand in the VHP area, but also some inventory buildup by customers that continued to have a positive impact. We also had rollout of new product variants. We expect the inventory buildup to be back to a normal level in the third quarter, but with continued healthy volumes. The EMC part of the business area experienced good growth in the quarter, and we had continued low mobile phone volumes.
We had a very strong EBITA margin of 14.4%, of course, based on high volumes, and we also had a general contribution from the Chinese authorities that had a positive impact of just over one percentage point of the EBITA. The sales ended up at SEK 1,150,000,000, and the operating profit ended up at SEK 166,000,000, making a very strong quarter for Integrated Solutions. Turning to page 10, Industrial Solutions. Here we are on a technology and geographical expansion journey, but in this quarter we had some negative effects of the COVID-19 situation affecting the quarter. The Industrial Solutions business area is consisting of two different parts. I'm on page 11 now. The general industry being the largest portion, with design and production work for general industrial customers.
We have our automotive sector, working with the Scandinavian automotive market, both the heavy truck side and the vehicle side. This part of the business was, of course, affected mostly by the COVID-19 situation. Turning to page 12, summarizing up the Industrial Solutions second quarter. We saw during the quarter a decrease of 16%, currency adjusted, of the sales. We saw lower demands from the automotive industry as a result of a halt in operation in the first quarter. We saw low but gradually increasing volumes from the second half of this quarter. The coronavirus situation, combined with summer holidays, is also affecting volumes in the third quarter. The EBITA margin ended up at 2.4%, of course, affected by low volumes, but also some redundancy costs that had an impact of just over two percentage points in this quarter.
The sales ended up at SEK 459 million, and the operating profit was SEK 11 million.
Good afternoon, Peo-Ola Holmström speaking. Commenting on page 13, group financial highlights. I will focus on the left side of that picture, comparing the Q2 2020 with 2019 Q2. Net sales growth was 12%, or a bit more than SEK 2.3 billion, combined with the same level of margin, 11.7% for EBITA margin, giving an EBITA result of SEK 269 million. We had a very strong cash flow in this quarter, SEK 685 million. That was very much affected by less tied-up working capital. Some of that is temporary effects. The inventory levels have normalized following the temporary rise in the first quarter from the coronavirus situation. We had trade receivables, relatively low trade credit days at the end of the period, and we did see higher sales with short credit periods in the second quarter. Strong earnings, of course, and low level of investments also contributed.
In this quarter, we had SEK 63 million of investments. The first six months did show SEK 133 millions in investments. We still see investments for the full year of about SEK 400 millions, meaning that investments will increase the second half of this year. Still, we have a very strong financial situation with more than SEK 1.2 billion of net financial assets. Giving, of course, the opportunity to have those CapEx investments we plan to, and a good situation for taking opportunities going forward.
If we turn to page 14, and a little comment on our current situation per business unit. Starting with the Medical Solutions, where we have a maintain growth strategy. Of course, lot of focus on innovation, building strong customer relationship.
We have seen and are seeing a COVID-19 impact affecting part of the business with higher demands, such as the IVD and the diagnostic side, and the respiratory aids. On the other hand, a little bit slower volumes on the surgical side. If we look into the Integrated Solutions business area, we have established a position within the new product areas. We have a continued strong position within the EMC, and this is all then based on our flexible production structure. On the Industrial Solutions business area, we have advanced our market positions. We have seen efficiency measures having a good effect, but we are impacted by the COVID-19, affecting especially then, of course, the automotive side of the business. We are now opening for questions.
Thank you. If you do wish to ask a question, please press 01 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing 02 to cancel. There will be a brief pause while questions are being registered. The first question from participant will be Carl Ragnerstam from Nordea. Please go ahead with your question.
Hi, it's Carl from Nordea. I have a few questions. First of all, did you receive any government support in the quarter, mainly related to Industrial Solutions?
Yes, we have received the short-time permitting support during the second quarters in a couple of our industrial sites in Sweden. That is correct.
Is it possible to quantify it on a group level?
Yes. It's about SEK 10 million for the quarter.
Okay, perfect. Regarding Medical Solutions, you have positive impact from some areas related to COVID-19. You also have some negative impact as well. If you try to give us the net impact of the growth for Medical, would you say that it's positive or negative with the COVID outbreak? For the organic growth, I mean.
Yes, I understand. I would summarize it as positive.
Could you say if it's significantly positive or just slightly, or could you give some flavor on that?
I would say it's slightly positive.
Okay, perfect. Regarding Integrated Solutions, could you comment what you have seen so far in July? Would you say that you still have a positive inventory buildup effect or did it normalize in June?
I think currently we don't have an impact right as we speak.
Okay, perfect. In terms of the organic growth in Integrated Solutions, is it possible to try to split what was inventory buildup for the old devices and how much that came from the new device that you launched? Or is the whole inventory buildup related to the new device, perhaps?
I would say that the sales in this quarter is very much related to new products, definitely.
New products or the new product?
New products.
Okay, it's not just one new product. I guess you have three products now, right? One launched in April, or?
It's depending on what you mean with new ones. I would say if we compare to old products sold in 2019, those are gone, so to say, and the ones sold in this quarter is the new ones after that.
Okay, perfect. I got it. The final one for me, you still have a quite significant net cash position. It is maybe up to the board, would you consider distributing dividend for 2020, or at least have the discussion?
As you say, it is a question for the board to decide on. We did say at the general annual meeting that the board will consider the situation during this autumn and how the world situation has developed and, of course, our own development. There will be a new evaluation going forward about this and the situation.
Okay. Sorry, one more if I may, sorry. Could you also give some more flavor on the efficiency measures that you are implementing in Industrial Solutions?
I think we would like to say that we have seen the effect. In a normal situation, we will be back on normal levels.
What measures are you taking? Is it just cost out measures, or are you taking some efficiency measures as well?
The situation was created by a very long period of organic growth in parts of our business sites. Of course, that takes some time to make sure you get the efficiency up, you get the yields up, and so on. We are on that situation now.
Okay, perfect. Thank you.
Thank you. Are there any other questions?
The next participant is Michael LaFond. Please proceed with your question. Thank you.
Okay, thanks. I also have a few questions. The first one is about the Integrated Solutions segment and the outlook comment that you made. What do you mean with normal inventory levels in Q3 and healthy volumes ahead? Is that on par with Q2 revenues?
I would say that in Q2 we had, of course, some help in the growth by the inventory build-up situation. Of course, if we take away that will then not help the third quarter by that factor. Of course, if you compare to the relatively low level in Q3 last year, then of course, we will see a good growth compared to that number at good levels.
Okay. Maybe more in line with a bit better than what you had in Q1, I assume. Maybe around SEK 1 billion, if that's what you mean, or just to be I mean, take away misunderstanding here.
That's one way of putting it, yes.
Okay. It would be great to get more insights into the EMC segment and the other product areas that you have within Integrated Solutions, how they are performing. How much, for example, is EMC generating right now of revenue?
The split between EMC and the rest, which is very much VHP, in the second quarter is quite the same, actually. We have, of course, higher sales in the EMC, but we have also higher VHP sales. In relative terms, they are quite equal. As we describe it backwards in time, the EMC part is between 15% and 20%. We have had growth in that area, but also growth in the other areas, mainly then VHP.
Okay. Another question here is regarding the industrial side. How did the automotive revenue develop in Q2? I'm thinking about year-on-year growth and how much of Q2 revenue that was generated by automotive customers, approximately.
The bulk of the decrease in the second quarter came from the automotive side. Mainly all of the decrease is automotive related. We have some positive things on the upside, but also some segments on the negative side. Very much of the decrease is from the automotive.
Okay. Most other end customer segments had more or less that revenue, correct?
Yeah, if you sum them up, then of course there were some also affected by COVID, but there were some with an increase as well.
Okay. The final question from me, if the Medical Solutions segment grew nicely there, 9%, and you had some positive effects and some negative ones from COVID-19. What would be great to hear more just in absolute terms, or how much diagnostics and respiratory aid, how much of revenue those two areas are generating and also the negative side, the surgical product areas, how much of revenue is that approximately?
I think for those type of information, we would ask you to look at when we had a Capital Markets Day last year, we shared some of that information.
Okay. Yeah, I'll look to do that. Thanks. Was it a significantly different picture now in Q2 than you had last year?
No, I would not say that. In the medical business, you don't see significant changes, because it's relatively, how should I say? You need to have equipment for anything, so it takes some time to adjust.
Okay. Maybe one more, if I may, regarding Medical Solutions. Can you talk about the pipeline that you have in the Medical Solutions segment, key drivers, and it seems that you have really good momentum there and can maybe continue to grow by almost 10% ahead? Something that you can share, maybe?
More on a general level. We are pleased with the pipeline we have. It's okay. The areas that we are focusing on are, of course, the growth areas within the medical as described last year as well. Of course, we have a long-term target to outgrow the market, which we are doing. You will not get double-digit growth every quarter, of course. It's up and down. Over a period of time, our ambition is to outgrow the market.
Okay, fair enough. Thank you.
Thank you.
Thank you. Since there is no more participants for the Q&A section, I will hand over back to the speaker for the closing. Please go ahead.
Yes. Thank you very much for your interest in the presentation of the second quarter for Nolato. I wish you all a very pleasant summer. Thank you.
Thank you. This overall will conclude our conference for today. Thank you for all the attendees. You may now disconnect your line. Thank you.