CEO s address to Nolato s 2011 Annual General Meeting Dear shareholders, ladies and gentlemen. The dip in our telecommunications operations at the beginning of 2011 which I will return to later does not diminish the significance of the fact that, in terms of income, 2010 was the best year for the Group since Nolato was founded in 1938. The recovery following the global financial crisis was much quicker than expected, and all three of our business areas showed an excellent improvement. Nolato Medical s sales rose by 17%, Nolato Telecom s rose by a full 44% and Nolato Industrial s rose by 21%. Overall, the Nolato Group s sales were up 30% to almost SEK 3.4 billion operating income grew by 58% to SEK 262 million and earnings per share stood at SEK 7.11, compared with SEK 4.68 during the previous year. We exceeded all our financial targets during 2010. The EBITA margin was 7.8%, and the return on capital employed was 18.4%. The equity/ assets ratio was 50%, exceeding the target by 15 percentage points, despite last summer s acquisition. Naturally, the rapid economic upturn and our customers renewed faith in the future have been key factors behind this pleasing development. However, our strong financial position has also been extremely important. Our financial strength has given our customers confidence, and has enabled us to survive the financial crisis while retaining key competence and sufficient resources to enable us to respond quickly to the increased demand when the recovery came. Nor should we forget the proactive, forward-looking work carried out by our employees on a daily basis, ensuring our competitiveness whatever the state of the market. As you are no doubt aware, the Nolato Group is divided into three customer-focused business areas. We thereby create the industry-specific conditions required in order to achieve success with each individual customer. After all, although the entire Group s operations are based on in-depth expertise within polymer technology, excellent project management and a high degree of efficiency, there are significant differences between the various customer groups: Nolato Medical s operations within medical technology and pharmaceuticals feature long development processes, product life cycles that span many years, and extremely strict demands in terms of quality, traceability and safety. This differs greatly from Nolato Telecom s operations within the mobile phone sector, where extremely short development times, fast production start-ups, short product life spans and a great deal of flexibility are all features of our day-to-day work. And while the markets for Nolato Medical and Nolato Telecom consist of a smaller number of large, global customers, Nolato Industrial operates in a fragmented market, with a large number of players of all sizes.
The key concepts for Nolato Industrial are proximity to the customer and a high degree of automation. Let me now go through the key events of 2010 in a little more detail, starting with Nolato Medical. Naturally, the big event within Nolato Medical in 2010 was the acquisition of the US company Contour Plastics. We have acquired a great company, which is a good business fit for Nolato Medical and gives us an excellent foothold in the North American market. The company, which is now called Nolato Contour, is a key element of Nolato Medical s strategy of offering customers a global presence with operations on three continents: Europe, Asia and North America. This is particularly important now, as the market is undergoing a consolidation and our customers are reducing their numbers of suppliers. The work involved in integrating Nolato Contour into Nolato Medical is running according to plan, and we have started to transfer liquid silicone injection moulding technologies from Sweden to the US. This is an area in which Nolato Medical is the world leader, and there are excellent business opportunities for us in North America. Nolato Medical is also developing well here in Sweden. Capacity is being increased in Hörby by 3,700 m², including two new clean rooms. These premises are now gradually being brought into use, giving us the ideal conditions for further growth within major system projects, featuring advanced development and large-scale production. And just a stone s throw from here, in Torekov, we are increasing our focus on our niche segments dipping and extrusion by forming a separate company for these operations, with its own resources for management, sales and technology. Naturally, the new medical company in Torekov will be called Nolato MediTor. Here are a few examples of products within Nolato Medical. From incontinence aids and products for cardiovascular disease and insulin dosing, to products within diagnostics and primary pharmaceutical packaging. Within the mobile phone sector, computer-like mobile phones with touchscreens are winning an ever larger share of the market. Until now, these smartphones have been a separate segment of the market, but this technology is now also spreading to handsets in lower price classes. This means that the demands placed on handsets within the premium segment are growing, not only in terms of performance, but also in relation to materials, quality and design. Creative uniqueness when selecting materials and cosmetic effects has thereby become increasingly important. We are therefore working hard to develop a range of our own cutting-edge technologies within this area. For example: Nolato SurfaceTech, which enables us to create surfaces with complex structures, optical effects, texture and depth. Nolato ImageTech, which allows us to easily produce smaller runs of mobile phones with a unique appearance, for example for campaigns or special events.
Nolato LogoTech, which offers decorative and cost-effective solutions for logos on handsets. Nolato ClearTech, a technology that creates mobile phone windows with first-rate functionality, transparency and scratch-resistance. Our strategy is not to become a high-volume manufacturer, but that Nolato Telecom should be the best technology supplier and thereby offer our customers clearly differentiated products with significant cosmetic and haptic content. In other words, with a focus on appearance and texture. As well as mobile phone components, Nolato Telecom also develops and manufactures shielding against electromagnetic interference. Here you can see one such shielding solution: a silver-based silicone gasket. The gasket protects the electronics in base stations against interference, while also keeping out dirt and moisture a factor that has been subject to greater attention as base stations are now being moved higher up the actual transmitter masts. As previously announced, we are closing Nolato Alpha in Kristianstad. The property has been sold, and production will cease completely this summer. This closure marks the end of an important chapter in Nolato s recent history. It was through the acquisition of Ericsson s plastics factory in Kristianstad in 1997 that we first entered the mobile phone sector. At that time just over ten years ago the Nordic region was the obvious choice of location for manufacturing high-tech mobile phones. In a short space of time, Nolato grew to become an important player within automated high-speed assembly, and many of Ericsson s innovative handsets were given their characteristic appearance in Kristianstad. Today, the situation is different: A high degree of automation and long product runs have been replaced by flexibility and demands for ever faster model changes. The Nordic region has been replaced by Asia, and Kristianstad by Beijing. We have followed our customers to Asia, and thanks to the fact that we have continuously adapted in line with ever-changing market conditions, we remain an important player in this segment today. Our third business area, Nolato Industrial, which was hit hardest by the downturn during 2009, showed an excellent improvement in 2010. Volumes grew, its competitiveness was strengthened, and its market positions showed further improvement. However, continuous improvement and efficiency measures continue unabated. After all, it is the companies productivity in combination with a high level of technological content that results in market successes. Nolato Industrial is the Swedish market leader, and enjoys a strong position as a quality manufacturer in parts of Central Europe. Its products may not be as exciting as those produced within the other two business areas, but they play important roles within the automotive industry, white goods, gardening/forestry, hygiene, the furniture industry and other selected areas, such as the construction industry.
During 2010, we began production within a new product segment in Hungary. We are now increasing our capacity, and will move this production during the current quarter to a brand new factory in Romania, thereby coming closer to our customer. I would now like to move on to something that I know is close to all of our hearts: sustainable development. Sustainability is nothing new for Nolato. For 73 years, issues relating to the environment, social responsibility and ethics have been part of our Basic Principles and natural aspects of our business activities. Nolato is regarded as a good role model within these areas, and we have scored highly in the external evaluations that have been carried out. For example, Nolato s shares are included in business publication Veckans Affärer s sustainable portfolio. Although sustainability work is nothing new for us, the fact that four fifths of our employees now work in China has placed greater demands on our corporate social responsibility work. An analysis of our own strengths and weaknesses shows that most of what we do within this area is done well and to a high international standard, but that there are naturally certain areas where further improvements are needed and this is something that we are of course working on. For example, one important step was taken in this area during 2010 when Nolato Beijing was certified in accordance with OHSAS 18001, an international standard for health and safety in the workplace. We have also signed up to the UN s Global Compact, which includes ten principles relating to the environment, working conditions, human rights and anti-corruption measures. For a number of years, the Group s sustainability performance has also been reported on in accordance with the GRI (Global Reporting Initiative) guidelines. The aim of internationally standardised reporting in accordance with the GRI is to make it easier to assess and compare companies from a social, environmental and financial perspective. Quality and environmental certification of all our production units in accordance with ISO 9001 and 14001 is a matter of course for us. All our units have been certified, with the exception of our newly acquired unit in the US and the recently commissioned unit in India. We aim to have both these units certified during 2011. You can find our full sustainability report for 2010 on our website. Now I will move on to the report for the first quarter that we published earlier today. As announced previously, a drop in demand for Nolato Telecom s existing product portfolio had a negative impact on sales and income for the first quarter. Following a strong start at the beginning of the year, demand fell dramatically following the Chinese New Year in early February. However, improvements within Nolato Medical and Nolato Industrial compensated for this drop to some extent, giving sales of SEK 759 million for the Group as a whole during the first quarter an increase of 2% compared with 2010. Operating income (EBITA) stood at SEK 44 million, compared with SEK 63 million for the
first quarter of 2010. And earnings per share were SEK 1.06, compared with SEK 1.71. Cash flow after investments rose to SEK 111 million, compared with SEK 0. This increase is mainly due to a reduced need for working capital within Nolato Telecom. If we look at the individual business areas, Nolato Medical s sales were up 25% to SEK 232 million, with h operating income up 22% to SEK 28 million. The majority of the business area s customer segments experienced strong growth in volumes, and operations have developed very much in line with market growth. Nolato Telecom s sales fell 19% to SEK 259 million. Operating income was SEK 4 million. New customer project start-ups are underway, and these will gradually replace the older product portfolio. However, there is a general sense of uncertainty in the market in relation to access to components as a result of the natural disasters in Japan, and this may have an impact on volumes in the future. Nolato Industrial s sales rose by 11% to SEK 268 million. Strong demand, market position gains and new products have all contributed towards higher sales. Operating income rose by 47% to SEK 25 million. Our financial position is strong, with financial net assets at the end of March of SEK 80 million and an equity/assets ratio of 54%. We have achieved the overall operational and strategic objectives that we set for 2010. Our financial margin target has been increased by 1 percentage point to 8%. Our target for return on capital employed remains unchanged at 15%, and our equity/assets ratio target remains at 35%. Nolato s shares showed good growth during 2010, with the share price rising by 41% from SEK 59 to SEK 83. Following our announcement about Nolato Telecom at the end of March, Nolato s share price has been within the range of SEK 75 to SEK 81. Finally, a few words about our objectives for 2011: We shall continue to develop Nolato Medical s global, customer-focused production platform. Our objective is to try to carry out an acquisition in Europe or to be involved in a major outsourcing project. We shall continue to build on Nolato Telecom s cutting-edge technology with significant cosmetic content while also striving to broaden our customer base. We shall progress Nolato Industrial s market positions even further through a continued focus on technology and productivity, and we shall succeed with setting up in Romania. Nolato has skilled employees, a flexible and modern production platform and a strong balance sheet, and we are well positioned from a purely strategic point of view. So, despite a tough start to the year for Nolato Telecom, I look to the future with optimism and confidence. Thank you!