The Managing Director's speech to the 2019 AGM
Nolato is doing well.
In 2018, we broke our sales and profit record once again. At six out of the last ten AGMs we have spoken about earnings being better than ever before in the company’s history. In 2018, all three of our business areas performed well; Industrial Solutions’ growth was good at 6%, growth for Medical Solutions was a strong 12% and growth for Integrated Solutions was an exceptional 28%.
Nolato has been a large cap company on the Stockholm stock exchange since the start of 2019, with everything that implies in terms of increased investor interest, especially internationally.
So why is Nolato doing so well? What is it that has resulted in a company whose roots are in the fertile soil of the Bjäre Peninsula in southern Sweden being able to expand so that it now has large production plants in far-flung places such as Shenzhen, Suzhou, Mosonmagyaróvár, Baldwin, Penang and Degersheim?
The answer lies not only in the company’s firm local foundations and a down-to-earth approach taken since 1938, but also in the transformational journey we embarked upon seven to eight years ago. We realised early on that our traditional role as a subcontractor, being good at manufacturing components to customers’ technical drawings, would no longer be enough. To survive, suppliers of the future need to be able offer more. To be involved from discussions of concepts and supporting development to delivery of finished products. Ideally all the way to the shelf of our customer’s customer.
So we took the strategic decision to take our business to the next level and become a global, high-tech, advanced partner for our customers. A partner that would be able to work together with customers’ developers and help design better products. A partner that was not only technically capable, but that was also familiar with the customer’s area of business. A partner that gave its all, worked alongside customers, and took a long-term view of cooperation.
You’ll understand that it’s easy to make such a decision but much harder to implement it.
So why are we now seeing growing indications that we have succeeded?Let me start with something that Nolato has always emphasised, but that perhaps not many people really understand the significance of; our strong corporate culture. It’s based on interaction between capable individuals with know-how, good ideas and a sense of responsibility creating a successful company. This has resulted in us having a collaborative structure and a clear philosophy that decisions should be taken close to those people affected by the decisions. For instance, we have purposely kept resources at Group level down and instead give the management teams of our development and production units significant flexibility to manage in a way that supports entrepreneurial spirit and initiative. The role of Group management is to set goals, ensure that the pace and direction are right and to provide support if necessary. But local management should have their hand on the tiller to determine the exact route.
This strong culture, with significant influence at all levels, has created our other key pillar: continuity. Nolato has very low employee turnover, in both production and our companies’ management teams. Together the five members of Group management have over 100 years’ experience of Nolato. Four of us have worked here since the mid-1990s. The most recent addition, our ‘rookie’, started eight years ago. And it’s a similar story for the rest of management.
This has led to in-depth knowledge at most levels of the Group. Not only about the company, but also about customers and their markets, making it easier for us to find the right way when conditions change. Nolato comprises so much experience that we can be proactive even when the road gets difficult or we face obstacles. This experience also allows us to respond quickly to customer needs and allocate additional resources where there are new opportunities, such as expanding our capacity or accompanying customers when they have production needs on new markets.
We are also fortunate to have what I consider the third pillar: strong owners. Nolato was founded in 1938 and today, 81 years on, through the Jorlén and Boström families we still have representatives of the founders on our Board. In addition to acting as a sounding board, the support that active long-term owners provide is priceless. Particularly when you’re far out to sea and a long way from home.
The fourth pillar is that Nolato already had a lot of what it needed. We were sailing in the right direction, had the wind in our sails with experienced hands on the tiller and a chart to follow. We know the field that we operate in, are experts in the technologies we use and have a good understanding of both our strengths and our weaknesses.
The final and perhaps critical pillar is good finances. Our strong financial position has made it possible to invest over an extended period in both technology and capabilities, allowing us to continually develop our customer offering.
So where are we today?
We have achieved much of what we wanted to achieve when we embarked on this transformational journey. We are a strategic partner for many of our large customers. We have resources and capabilities to support customers from beginning to end. And we have around 25 of our own development and production units in Europe, Asia and North America. Units that are continually being extended and expanded.
Put simply, our business model involves close cooperation with leading, globally successful, large companies with continual product development. We support these companies by being experts in polymer materials, advanced design and large-scale production of complex products. They often have integrated electronics and stringent requirements in terms of precision and execution.
We are becoming a key part of a customer’s product development, and are also taking responsibility for efficient, reliable manufacturing of customers’ products. Put simply, we endeavour to create added value that makes us the customer’s first choice of cooperation partner.
Within this process we have the great advantage of being One Nolato. This enables each Nolato unit to offer its customers an end-to-end solution comprised of the best mix of its own specialist expertise and the global Group’s wide-ranging capabilities and resources. A perfect combination of close cooperation and global opportunities.This is also reflected in our production units around the world becoming more universal. We benefit from dual-purpose production sites and shared solutions. We generate significant efficiency in our investments by being able to serve different types of customer at the same unit. The different production flows are entirely separate and specialised, but infrastructure and support functions are shared. A current example is Nolato Contour, our North American production plant in Wisconsin near Minneapolis. It’s a unit that has previously focused entirely on medical technology within our Medical Solutions business area, but we are currently also establishing production there for a large customer within Industrial Solutions.
We have had a unit in Hungary that operates in this way for many years. The plant has worked very well and we have just completed its third major expansion in six years. It’s a large site with around 700 employees working in separate production flows for Medical Solutions and Industrial Solutions.
In Malaysia we have a new plant at which two Integrated Solutions customer segments cooperate. It’s here that Nolato Silikonteknik manufactures EMC products that shield against electromagnetic radiation and Lövepac Converting produces punched design elements for consumer electronics.
But combined production plants shouldn’t be obligatory; in some cases there is only a market in one segment, so we initially only build the plant for this. For example, in Shenzhen, which is next to Hong Kong in southern China and is fast becoming the world’s leading electronics hub, we have built a new plant specialising in design elements for consumer electronics. And in Györ in Hungary, just 40 kilometres east of the large plant in Hungary I just mentioned, we have a built a smaller electromagnetic compatibility shielding unit. The location was chosen as this plant is intended to lead this customer segment’s breakthrough into the automotive industry, which is heavily represented in the region around Györ.
In Suzhou, west of Shanghai in eastern China, a city often referred to as the Venice of China, we have constructed a new plant for the manufacture of connected products with integrated electronics. This plant takes the pressure off our unit in Beijing and, as we expand our geographic presence, we gain greater flexibility by having multiple plants in China for this type of production.
These plants manufacture items for segments such as Vaporised Heating Products, an area that has grown very rapidly within Nolato over the past year. I believe our ability to establish ourselves within a short space of time as a strategic partner for one of the market’s dominant operators is a good example of what we can achieve through our business model.
An important aspect of our business model is also the inclusion of a responsible and proactive approach to sustainable development. Sustainability is an integral part of our culture; we simply can’t operate a successful business without constantly considering environmental, ethical, social and economic sustainability issues on a daily basis. We have to take responsibility in both the short and long term.
So corporate responsibility isn’t just part of our corporate culture and day-to-day operations, it’s also an integral part of our long-term business strategies. We see clear links between environmental benefit and business benefit; it’s an approach that has long been reflected in our business, but that we’re now taking to the next level.
Nolato is a key operator within the plastics industry and it’s time for us to make an even clearer contribution to sustainable development. So we are now further increasing our activities in the environmental arena and have an even stronger emphasis on sustainability in cooperation with customers. We aim to actively present sustainable solutions for the choice of raw materials, design, production processes and transportation to reduce the environmental footprint of products in all respects.
If the customer does not share our view of sustainability and does not wish to take measures to reduce the product’s environmental impact, we are prepared to turn the assignment down. We consider this the only way to really make a difference and contribute to a more sustainable future for all of us.
Above all, today’s requirements –for responsible business, globalisation, digitalisation and constant fierce competition – pose challenges that we have to meet. Not only with regard to ourselves, but also in terms of being a partner for our customers. We believe it’s our mission not only to help customers create good products but also to turn each challenge into a competitive opportunity.
For us, this offers an opportunity to adopt a clear role as a responsible global supplier and high-tech partner. A role that we are assuming by capturing customer needs early on in customers’ development processes and increasing the level of innovation.
Now a few words about the first quarter of 2019:
Sales were just over SEK 1.6 billion, versus just over SEK 2 billion in the first quarter of last year. Operating profit was SEK 175 million, compared with SEK 264 million last year. The EBITA margin was 10.6%, versus 12% a year ago.
Sales have seen a decrease in the first quarter. This was mainly due to inventory adjustments by some large customers, as previously communicated. However, we consider this a temporary dip in development, and these types of customer-related fluctuations are natural in our line of business. We are now seeing signs that the inventory situation has normalised and believe we will return to a more normal position as early as the second quarter.
I began my speech by saying that Nolato is doing well. I stand by this and look to the future with confidence. We are continuing our journey to strengthen our vision of being the customer’s first choice of cooperation partner.
Our ability to provide integrated solutions helps simplify and speed up customers’ processes. Our combination of an end-to-end approach and a global presence allows us to meet customer needs for efficient development and the production of new products. Together with our proactive approach to all aspects of sustainability this creates new opportunities that benefit our customers, employees and you, our owners.