Hello. Welcome to the Nolato Q2 report 2019. Today I am pleased to present CEO Christer Wahlquist and CFO Per-Ola Holmström. For the first part of this call, all participants will be in a listen-only mode. Afterwards, there will be a question and answer session. I will now hand you over to Christer Wahlquist. Please go ahead.
Thank you. Welcome everybody to the presentation of Nolato second quarter 2019. I will start on page two with the Q2 summary for the group. In the second quarter, we had sales that totaled close to SEK 2 billion. It was a high comparison number that was SEK 2.3 billion last year. Adjusted for currency and group structure, that means the sales decreased by 17%. We saw continuously strong performance by Medical Solutions. We saw normalized inventory situation at Integrated Solutions. We had inventory adjustments affecting Industrial Solutions. The profit, EBITA, decreased to SEK 233 million compared to SEK 266 million. That gave us a strong margin of 11.7%. Cash flow of the investments amounted to SEK 178 million. We still have a continued solid financial position. I am now turning to page three in the presentation.
Of course, we have the Nolato group consisting of three different business areas. In common for those, we have, of course, the same corporate responsibility. We use the same material technology. We are working as solution-oriented development partners. We share the same technology on the production equipment side. Of course, the business areas are very separated in the market segments they are addressing. We see that we get a lot of synergies between the different areas that we are working in. Now jumping to page four, starting with Medical Solutions. In the second quarter, we had sales of SEK 634 million and EBITA of SEK 82 million, giving a margin of 12.9%. You can also see that is again, record for us, which we have seen now for close to 20 years in a row.
If we look into the figures, turning to page five now, we had an increase of sales of 13%. If we adjust that for currency effect, it was a strong 9% growth in Medical Solutions business area. We saw increased volumes both within the medical device sector as well as in the pharma packaging sector. We believe that the second half of the year will be in line with last year. In the Q3 last year, we had some extra sales or extraordinary things of SEK 35 million. That's why we are having a little bit of that comparison. We see a strong long-term growth. We have the ambition to grow this faster than the market. In some single quarters, we could have a little bit less than that. The margin ended up at 12.9%, as I said, with sustainable healthy margins.
We have our main project activities within the auto-injector, the insulin products, and incontinence products. The production capacity that we have increased is completely according to plan. Turning to page six, we see the two different parts of the business area, the medical device, which is the larger portion, and that is working mainly then with things that are helping you to have a healthy situation with active devices. Then we have the pharma packaging side, which is mostly containers for drugs or solid or liquid drugs. Turning into Integrated Solutions on page seven, we had a sale in this quarter of SEK 821 million, an EBITDA of SEK 107 million, giving a strong margin of 13%. In this quarter, we had a very high comparison number in second quarter 2018. We had a decrease in sales of, if you adjust for currency, 35%.
We see that the inventory situation has been normalized, which means that the high production we used to have in 2018, building stocks, is now on a normalized level. We have received orders for the new VHP models and retain a very strong position with the customer we have. We had, during the quarter, weak volumes for the mobile phones, but excellent growth within the EMC business. The margin, as I said, was 13%. We have a higher volume sequentially, a positive product mix, and a good currency effect giving this strong margin. I'm turning to page nine, showing the two business segments of the Integrated Solutions. We have the consumer electronics consisting of mobile phones, wearables, connected Wi-Fi system, and other things like that.
Then we have the EMC and thermal working with a shielding solution, thermal management within electronic parts of business, all kinds of different things. I'm turning to page 10, focusing on the Industrial Solutions business area. We had a Q2 with a sales of SEK 541 million, giving an EBITA of SEK 46, and that is corresponding then to a EBITA margin of 8.5%. Turning to page 11. This SEK 541 million gives a decrease of sales by 3% if we adjust for currency and group structure. We had, during this quarter, an inventory adjustment within the hygienic area affecting volumes. The margin of 8.5% was a little bit lower than previously. We had lower volumes than we have, impact of the unsatisfactory efficiency in one of the production facilities. We see measures implemented are gradually having an effect, and we see a sequential increase of margin.
Turning to page 12, showing the two parts of the business area Industrial Solutions. We have general industry working with general industrial companies, as well as the automotive sector, focusing mainly on the Scandinavian automotive market, such as cars or heavy trucks and other things.
On page 13, we summarize consolidated group numbers. Net sales of almost SEK 2 billion compared to SEK 2.3 billion. It is a decrease of 17%, mainly from Integrated Solutions. Operating profit, EBITDA, going down from SEK 266 million to SEK 233 million, which is mainly a volume effect. The EBITDA margin is 11.7% compared to 11.6%, which we consider a strong margin with the lower sales. Effective tax. The tax rate at the same level as last year if you compare on the accumulated six months numbers, 20.1%. Cash flow after investments, SEK 178 million in this quarter compared to a very high SEK 352 million last year. It is a more normal level this year, and last year was very high because of extraordinary working capital effects in Q2 last year.
Earnings per share is SEK 6.82 compared to SEK 7.75 last year. Net investments impacting cash flow, SEK 192 million accumulated after six months.
It is a lower number than last year. It is more in line with the expected SEK 400 million for the full year 2019. We have a strong balance sheet with equity assets ratio of 47% at the end of this quarter and net financial assets of SEK 190 million at the end of June. The lease effects from IFRS 16 is explained in this slide package to the meeting, but the effects are very similar to the ones of the Q1.
Okay, turning to page 14, where we talk about the current situation, starting with Medical Solutions, where we see a maintained growth strategy, focus a lot on the innovation side, and we have very strong customer relationships. Within the Integrated Solutions, we have established a position within the new product areas where we sort of transfer ourselves. We have a continued strong position within the EMC thermal and working with the flexible production structure. In the industrial sector, we have advanced our market positions. We have efficiency measures taken and gradually having an effect. We can see some indication of slowdown in the economy, but stable volumes. I think we are open for questions.
Thank you. Ladies and gentlemen, 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. The first question comes to the line of Carl Ragnarstam from Nordea. Please go ahead. Your line is now open.
Hi, it's Carl Ragnarstam from I have a couple of questions. First of all, what I can see you had pretty strong growth from a EMC volumes in the quarter. What was behind that, and what can we expect going forward?
I think the reason behind that is we have advanced our market position, both within the telecom business area, but also in the new segments that we are gradually going into.
Strong growth going forward as well, or was it just a one-off quarter?
We have a long-term ambition within the EMC to move ourselves from previously only being in the telecom business, but moving ourselves into all kinds of different areas. Of course, the reason behind that is that we are looking for long-term growth.
Okay, perfect. Can you perhaps comment on the seasonal variation of the tobacco heating products? What can we expect in the second half there in terms of normalization? You said that the levels are now normalized. What is a normalized level? If you can walk through the variations or the seasonal effects.
Okay. Normalized volume situation means that we are expecting to have sales corresponded more to the sales of our customer. I think that is something that we have seen now in Q2, and expect that going forward. We will not have the big swings. We are not expecting that as we have had before when we have been producing building stocks and decreasing stocks for the customer. More long-term following the market development. I think that's what we really mean by normalized situation. Seasonal effect, of course, we don't know everything about this market, but I don't expect any big seasonal effects within this market.
Okay. As far as I know, your customer will launch two new models where one is a new model, the second one is an updated model in Q4. Shouldn't we expect the inventory build up due to that? How should we look upon that?
I think now our customers have a much more knowledge about how the market develops, of course, when they're switching to a new model, you will decrease the stock of the old one and increase stock of the new one. I don't think we will see any big swings in that.
Okay. The final one. I've been looking into Industrial Solutions, when do you expect the hygiene segment to pick up again? Can you see anything there? Will you implement further measures in order to restore margins in Industrial Solutions, or do you expect the former measures to take back margins to more normalized levels?
I can start with the comments about the hygiene sector. We see signs of order intake going up in the third quarter. We expect that gradually coming back to a more normal situation.
Regarding the measures, I think we have put in measures, but there is a time lag to get these to sort of get the effect on the margin side. We expect to gradually see increased, more normalized margins going long-term forward.
Okay. Thank you.
Thank you. Our next question comes from the line of Mikael Laséen from Carnegie. Please go ahead, your line is now open.
Yes. Hello. Hi. I have a question about the Integrated Solutions segment and the VHP, the output for that product group. Can you please elaborate a bit more on what this means, the normalized inventory situation and new products ramping up? Can we expect unchanged quarterly sales in the second half compared with the second quarter? You had the guidance before and you are not saying anything right now. If you can maybe elaborate a bit on the output, please.
Yeah. To start with the last part of your question about the guidance. We had guidance because we saw the big swings, not sort of being market swings, but being supply chain swings. That is why we felt the need for guiding for a period of time. We entered the VHP sector because we think this is a long-term growth market, and we think this is going to be an interesting place to be long term. Exactly how single quarters will be, and that we are not really giving prognosis on that, but giving the information that we think that we have normalized the sort of swings in the supply chain. We think that our sales will more follow the customer sales and the market development than anything else. We believe this to be an interesting market that has long-term growth potential.
Yeah. Okay. Got it. Is Q2 a sort of a base level where it can grow from? Is the first half that type of base level that you can expand, grow your revenues from? Can we sort of compare with something and get a feel for growth going forward?
I think one comment to that would be that we had some quarters during 2017 and 2018, which had about SEK 900 million in sales. For the Integrated Solutions business area. This quarter, we had only SEK 821 million in sales. Compared to those SEK 900 million quarters, which we explained contained SEK 600 million of VHP and SEK 300 million from the old telecom business. We are a bit behind the sales numbers at those quarters. From that, we can see some potential going forward. The spread between those two areas within Integrated this quarter was that both areas were a bit less than the SEK 900 million in a number of quarters in the historical years behind us.
Okay, got it. A final one regarding the Medical side. The comments regarding second half, can you explain this a bit in more detail? Do you expect unchanged organic sales growth in Q3 and Q4, or is that how we should interpret that comment?
I think you should interpret that as a second half of the year more situation than the quarters by quarter.
Okay. Totally. Got it. Okay. That's helpful. Thanks.
Thank you. Yeah, one comment to that as well could be that it was mainly in the third quarter last year where we had a lot of extra sales from equipment and development time. That is one comment as well.
Okay. Thanks.
Thank you. Our next question comes to the line of Oscar Vikstrand from G. Please go ahead. Your line is now open.
Hi. Thank you. Just two really good questions here. Just to follow up on one final thing. The Industrial Solutions segment, obviously you were mentioning a bit of a slowdown in the economy, you're feeling that at least seeing some signs of that. Then you had negative growth this quarter, mainly partly due to this hygiene clients. I was just thinking, when the hygiene client is out of the picture, what would be sort of a good normal underlying growth for the segment going forward? Would it be negative, or would you say that it's slightly positive?
To start with, I can say that, if the hygiene volumes would have been at a normal level, we would have seen a very small growth in this quarter, actually. Going forward, it is of course, in an economic situation where this business area is in business, depending on the economic cycle and what will happen there. We haven't seen any dramatic changes lately. We have, of course, also heard from the other companies reporting and the industrial companies reporting. Of course, we are in that business. Some showing positive signs, but some is also showing negative signs.
Yeah. Understood. Thank you. Just one last thing. On the mobile phones, weak volumes, what does that entail? Is that like flat or is that negative volume growth or?
Well, it depends, of course, by where you take your starting point, but I would say negative.
Okay. All right, cool. That's all from me. Thank you very much.
Thank you.
Thank you. Just as a reminder, if you would like to ask a question, then please press zero one on your telephone keypad. Our next question comes to the line of Darren Joshi from Stockview. Please go ahead. Your line is now open.
Hi, good afternoon, Christer, Per, Ola. I have three questions, please. My first question is, currently you are manufacturing VHP devices for one customer, That customer is sole sourcing their devices from Nolato. Do you see a risk of the customer moving to dual sourcing these devices, How might Nolato mitigate this risk?
I am sort of new product entering new markets, is that the customer The partner tends to form a strong relationship with all the innovation going on, That normally is true. You sort of pick one customer You pick one partner, Then you work very closely. Over time, we have seen that changing, of course, when the production The market is more developed The different players on the market have taken their share of the market It is more settled. That normally opens up for the customer to have more than one source The partner to have more than one customer. In a longer period of time, I think this will happen, It will happen from both sides.
Okay. Thank you.
Does that answer your question?
Yeah, that's clear.
Yeah.
My second question is, within the non-VHP portion of the Integrated Solutions business, you've highlighted excellent growth in the EMC area, competing with weak volumes in mobile phones. Are revenues in the non-VHP business net flat on previous quarters or is there a net expansion or contraction in that portion?
You mean the old telecom business?
Yeah. If you're splitting it into VHP and telecom, then that telecom business, is that flat on previous quarters or is that growing or contracting?
It is flat compared to the recent quarters. Of course, having in mind that EMC is increasing and we have a less good situation with the mobile phones. As a total, it is similar to recent quarters.
Okay. Thank you. My final question is, you've talked in the past about operating a decentralized operating structure. Would you be able to talk about the benefits you see as a result of this, and also how unique this model is in the industries in which you operate?
Okay. It's a model that we strongly believe in. It's the setup that we have been working for many years. It's the benefit that we see is you are very, how should I say, close to the customer, can make the right decisions where it's needed, and not at the central headquarter. I think the flexibility, the movement together with the customers, making sure you take the right local decisions are the sort of benefits from this model. The downside, I would say, of course, you could lose some economy of scale in this. From our point of view, this is the best model for our type of business. In the industry, I think we are on the, how should I say, more decentralized way compared to our peers.
Would you say that many of your peers operate a decentralized structure to a certain extent, or would you say more the norm is a much more centralized type of operation?
I would say it's more centralized type of model amongst our peers.
Okay. Thank you.
Thank you. As there are no further questions registered at the moment, I will hand the word back to the speaker for any closing comments, please.
Thank you very much for attending our presentation and for all the good questions. I hope you all get a very nice summer and maybe some vacation. Thank you.
This now concludes our conference call. Thank you all for attending. You may now disconnect your line.