Welcome to the Nolato AB Q4 2018 report. Throughout the call, all participants will be in listen-only mode. Afterwards, there will be a Q&A session. Today, I am pleased to present Christer Wahlquist, the CEO, and Per-Ola Holmström, the CFO. Please go ahead with your meeting.
Thank you. Welcome everybody. This is Christer Wahlquist and Per-Ola Holmström with the Nolato company to present the fourth quarter of 2018 of Nolato AB. I am turning to page two in the presentation with the summary of Q4 for the group. We had a sales decrease in the quarter, ending up at SEK 1,781 million. That is a sales decrease by 12%. We saw strong performance by Medical Solutions, and Integrated Solutions had lower volumes as previously announced. The operating profit decreased to SEK 214 million. We had a strong margin of 12%, somewhat weak margin within the Industrial Solutions section, but positive impact compensation from authorities in China. Cash flow after investments was SEK 122 million. We have a continued solid financial position. Turning to page three, looking at the full year of 2018. 2018, we had the highest sales in the Nolato history so far.
Strong growth across all business areas, exceptionally strong within the Integrated Solutions. Earnings per share rose 26% to SEK 27.44. A strong financial position with a net asset of SEK 159 million. The board of directors proposal for dividend is increased by 12% to SEK 14 per share, which is a payout ratio of 51% of profit. Turning to page four, showing the group and the three different business areas, the combination of the business areas. In common, we have the same corporate responsibility, the same sort of materials, work as a solution provider, development partner, and share the same production technology. Of course, with the different aspects of the different segments. Turning to page five, showing the Medical Solutions business area in the long-term perspective. As you see, we had another record year for the medical business area.
Turning to page six, looking into the Q4 for Medical Solutions. Here, we had a sales increase by 14%. If we adjust that for currencies, it turns out to be 8%. We saw good increase in volumes both to the medical device and the pharma packaging sectors. We had a sustained strong margin of 13.3% in the quarter. We see high activity in the market with project activity, especially within the auto-injector, insulin product, and incontinence product area. The production capacity expansion is completed according to plan. We ended up the quarter with SEK 580 million in sales, an operating profit of SEK 77 million. Turning to page seven, showing the two different parts of the business area, where the medical device is the larger and the pharma packaging is the smaller portion.
Turning into page eight for the Integrated Solutions, also showing a long-term view on the business area. In this business area, we also had a record year in 2018, as you see on the graph. Turning to page nine, looking into the Integrated Solutions quarter four, we had a sales decrease by 22%, and if we adjust that for currency, it was 27% decrease. As announced previously, the inventory adjustment within the VHP sector had a negative impact, and we also see substantial lower volumes estimated for the coming first six months of 2019, handling new models of heating products. We also have received orders for the new models and retained a very strong position with the customer. We also saw weak mobile phone volumes, but good growth for the EMC business. We had a strong margin in the quarter, ending up at 14.1%.
It was boosted by approximately two percentage points from compensation received from authorities in China. We had a consistent capacity utilization with underlying margin positive impact. The quarter ended up just about SEK 700 million in sales and an operating profit of SEK 99. Then, of course, the 14.1% margin. I'm turning to page 10, showing the two parts of the business area, where the consumer electronics is the largest portion, with also the VHP and the different connected devices. The smaller portion is the EMC and thermal business area. On page 11, we have introduced a small information regarding the development of the new segment within the Integrated Solutions, the strategy has been put in place some years ago to expand the business area scope into new areas to offset and decrease volatility from the telecom business area.
We see good growth opportunities in the expertise areas using the existing production technology. Then, of course, we have seen the VHP market have a long-term growth potential. The customer here is one customer, one of the three leading in the global market. We see that this project began in 2015, then it entered into production in 2017. There is launches going on, and of course, 14 markets so far, and additional geographical launch is planned. Jumping to page 12, the Industrial Solutions, quarter four. Here in 2018, we had the highest sales so far in our history. Turning to page 13, looking into the fourth quarter for industrial, we saw a sales decrease by 3%. If you take away currency and group structure, it was a 4% decrease.
We had volumes stable in most product areas, we saw a sort of weak end to the quarter. That was during Christmas break, we saw a slowdown. The margin ended up at 7.7%. We had unsatisfactory efficiency within the automotive part of the business area, and we have measures to improve the efficiency in full run. The sales ended up at SEK 505 million for the quarter, and the operating profit of SEK 39. Turning to page 14, showing the two different parts of the business area, automotive and general industry, general industry being the majority of this.
Good afternoon, Per-Ola Holmström. Turning to page 15 with the group financial highlights. The full year 2018 ended up with a record year, SEK 8.1 billion in sales and SEK 949 million in profit EBITA, with the margin of 11.7%.
For the Q4, the same numbers were almost SEK 1.8 billion in sales, a EBITA result of SEK 214 million and an EBITA margin of 12.0%. These results, they included compensation of SEK 14 million from Chinese authorities, which is not of recurring nature. The year ended up with SEK 27.44 in earnings per share. We have a strong financial position ending the year with equity assets ratio of 50% and a net financial assets of SEK 159 million. The investments during 2018 were SEK 452 million, We anticipate slightly lower CapEx 2019 to around SEK 400 million is our guidance. The tax rate for 2018 was 22%. That was adjusted for non-recurring items. We expect, as a guidance for 2019, a tax rate of 23%, 1% higher than 2018 because of earnings in different countries in the world.
Turning to page 16, the current situation, if we start with the Medical Solutions, we have a maintained growth strategy focused on innovation, We see high activity in the market and good project activity. Within the Integrated Solutions, we have established a position in the new product area. We have a continued strong position within the EMC and of course, the flexible production structure. If we look into Industrial Solutions, we have advanced our market positions. We have efficiency measures have been taken within the automotive sector, We see some signs of slowdown in the economy, but stable volumes. Thank you. Is there questions?
Ladies and gentlemen, if you wish to ask a question, please press zero one 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. Our first question comes from the line of Mikael Laséen of Carnegie. Please go ahead. Your line is open.
Thank you. Hi. I have a few questions, I can maybe take them one by one. First is regarding the Integrated Solutions segment. Can you please help us with the comment about markedly lower sales in the first half 2019 compared with Q4, of how we should think about the sequential decline now in Q1 and Q2? Thank you.
Yes. As you might have seen, we have written markedly in the report. I think one way of seeing that is to look how it changed between the third quarter and the fourth quarter 2018. We did see approximately SEK 200 million less in sales between these quarters, coming from approximately SEK 900 million down to approximately SEK 700 million, decreasing with SEK 200 million in sales. Short term, we mean approximately the same range of decrease compared to the level Q4 2018.
Okay, perfect. I guess you're referring to total sales drop, or is it the percentage change that you're referring to?
No, I'm referring to SEK million sales in absolute numbers.
Excellent. Thank you. That's very clear. I was curious about the new products that you said that you have in the pipeline for the second half for the Integrated side. Can you say something more about this? Will these take you back to Q3 levels, or I guess it's difficult to say, but if you can talk about your value add and maybe what you know about that side.
I would describe it like this: we are very pleased that we have a very strong position with our customer within this segment, and that we have a position where we have all the products that they have in the segment. Exactly which volumes we can see in the second half of this year, we don't really know that. Of course, there are plans, but things can happen up and down, so we would rather not speculate on that. We feel that we have a very strong position with the customer.
Okay. Just to maybe clarify, the sales drop that you expect now in the first half, sequential sales drop, is that due to end market being more mature, or has it something to do with your market position?
I think we can be clear that it's not something that has to do with our market position. It is in a moment where short term, there is a change in models, and I guess that is pretty much the answer why the volumes are as they are during the first half of 2019. That's the big part of the explanation, including the inventory situation, but waiting for new models.
Okay. I see. Yeah. One final, if I may, regarding the industrial side. You have still a bit lower margins in that segment, and you have initiated measures to adjust that. What are those measures, and when can we expect an impact?
We see that we gradually are coming to a better position. The measures are, of course, efficiency things in the organization where we can work in a more proper way. We have had a long-term growth in this area, as we described previously, that has created some efficiency situation. We are also in the process of strengthening the management and replacing some people.
Okay, that's it from me. Thanks.
Thank you. Our next question comes from the line of Johan Nilsson Wall of ABG. Please go ahead. Your line is now open.
Okay. Hello, thank you. Just to help me out to clarify a bit on the integrated drop going forward. Is that correctly interpreted by me that you're guiding for SEK 200 drop in Q1 compared to Q4?
Yes, we said short term that the drop we did see between Q3 and Q4, we expect the same kind of drop in SEK millions, roughly, of course, between Q4 and both quarters the first half of 2019.
Okay. SEK 200 less the run rate for Q4, for Q1, and also SEK 200 less for Q2 2019 compared to Q4?
Yes, roughly.
Okay.
Yeah.
Thank you. Looking ahead a bit there, when talking about those production launches, could you elaborate a bit more in time frame and maybe impact, insights?
I think you could say that there will be new interesting products going to the market, those will start, that is pretty much what will be driving the market from, let's say, the end of Q2 and going forward. That is the understanding we have from the plans so far.
Okay. I see. Thank you. Also, if looking at what I, how could I say it? Presume to be the customer related to this area. It seems like the category growth has slowed in one particular area, this device is performing quite well. Could you comment something on the market, on the entrance in new market for this product and also about the sentiment?
What was the last word?
If you could comment about new markets and also the market sentiment in the biggest markets.
The product or the products are being launched in new markets. Of course, as we described previously, there is a launch volume and also then you can reuse the device for many sessions, that is a very dynamic movement, and we are not 100% sure how that will move out in new markets as well. We think this market is very interesting long term, but the dynamics over the shorter period of time is very hard to predict. Overall, we think it's a good place to be.
Okay. Thank you. About Medical Solutions, how do you look at the outlook there in terms of, if let's say like this, the visibility we have there, how does it look from that perspective?
We have a strategy to grow faster than the market long term with the Medical Solutions business area, we see the market growth in some sort of 4% or 5%, we should be above that long term. Then how single quarters will play into that, it could be a little bit higher and low and some volatile on the growth range. Long term, we see we have a strong position, and we are gaining market share in the Medical Solutions business.
Okay. That was all from me. Thank you very much.
Thank you.
Thank you. Just to remind everyone, if you would like to ask a question, please do so by pressing zero one on your telephone keypads. Our next question comes from the line of Daniel Lindkvist of Handelsbanken. Please go ahead. Your line is open.
Hi. Just a quick question. On the new products and Integrated Solutions, are those driven by the need to make cheaper products for their markets, or are they driven by the need to make products with more features to their market?
I would say they are driven by features more than cheaper products.
Okay. Great. Just one, there's been very many questions here, so I won't hold you, but if you just could elaborate on the compensation you received in the quarter, why was it given to you, and should we expect something like this in the future as well then?
We have got compensation from Chinese authorities, and I wouldn't expect that those would come every year or every quarter. We have got some small time of these in the history, but not as much money as we did this quarter. It's hard to predict what the real purpose is or why they have been paid out. There have been explanations like, because of trade wars going on and these kind of things. From my side, I would say it's hard to say the reasons behind, and I think it's part of that we are good citizens in Beijing and are doing a good job with our employees and our customers, and this is a way of getting some reward for that, and it's very hard to say the real reason behind it and when and why that is paid out right now.
Okay. More of an encouragement to you-
Yeah
than anything else?
Yeah, I would say that.
Okay, great. No further questions on my part. Thank you.
Thank you. There are no further questions up the line. Please go ahead, speakers.
I thank you for your attention and maybe speak to you next quarter. Thank you.
Thank you.
This now concludes our call. Thank you for attending. Participants, you may disconnect your lines.