HEXPOL AB (publ)

Welcome to the Hexbol Q1 presentation. During the questions and answer session, participants are able to ask questions by dialing pound key five on their telephone keypad. Now I will hand the conference over to the acting CEO and CFO Peter Rosen. Please go ahead.

Thank you. Welcome to the presentation of the first quarter of 2024. I'll first give you a general business update, then go through the financials, summarize the quarter, and then, of course, we'll go into a Q&A session after the presentation. So if I can ask you to turn to page four of the presentation, we deliver a stable first quarter with strong margins. The first quarter showed demand and sales prices sequentially in line with what we saw during the last six months of 2023. We delivered sales of 5.3 billion SEC, an EBIT of 905 million SEC, and a strong margin of 17% in the quarter. The sales are below first quarter of last year, and this is mainly explained by Higher demand in the beginning of last year, as well as higher sales prices that were driven by the higher raw material prices that we had at that time. There are also fewer days of sales here in Q1-24 compared to last year, which has some negative impact in the quarter as such. EBIT is somewhat below Q1 last year, following on the lower sales. But the margin is up from 15.8% last year to 17% in this quarter, driven by a better product and price mix that we deliver. And when looking a little bit more at demand and sales during the quarter, we see a very similar picture compared to what we saw during the last six months of 2023, with stable development in this quarter across most end customer segments. Compared to Q1 last year, demand is down for mainly the same end customer segments that we saw during the second half of 2023, where automotive is down some, not much, but building and construction and consumer-related products are down substantially. Sales prices are lower than the first quarter last year. driven by lower prices, currently lower prices on raw materials. However, sequentially sales prices are basically flat in local currency. During last quarter of 2023, we announced the decision to consolidate our operations in California and close one out of two factories and move over the volume to the remaining factory. since we can service all customers from the remaining site. We took the cost for that move in 2023 since the work started then, and it is expected to be completed according to plan by the end of this summer coming up here. In the same quarter, the acquisition of Star Thermoplastics was announced, and the integration is ongoing, and it follows plan as well. The work on sustainability continues with development products and discussions with our customers. And also in line with our focus on sustainability, we've invested in a deal optimization line here in Europe, which is expected to be up and running by the end of 2024. And basically what we will do is that we'll transform cured rubber parts into uncured state again. through a mechanical process. And previously, rubber waste has been used mainly as a filler in low quality applications. But with this process, we can keep it in circulation and reduce the demand for virgin materials, also in more advanced compounds. If I can ask you to turn to page five, Looking at M&A, we have a pipeline that we continue to work on, and we certainly have the financial resources to do more acquisitions. So this is something where we will maintain a very high focus. If we then move over to Hixpool compounding, as mentioned, demand and sales are sequentially very similar to what we saw during the second half of 2023. And that is the same. picture across most end customer segments. But compared to Q123, demand and sales are down somewhat for automotive, but more so for building and construction, as well as for consumer-related products. Prices for compounding are sequential flat in local currency, but they are down compared to Q123. And as you may recall, when it comes to prices, we've peaked In Q4-22, Q1-23, and then prices started to come down during the second quarter of 2023. So we meet the highest level when it comes to pricing. Stable supply of raw materials. Supply chains work well. No disturbances. And overall, for compounding, we deliver a good EBIT and further improved margins for that segment. Engineer products delivered sales in line with last year. Just keep in mind last year was a very strong year, so we're very satisfied with these numbers. And EBIT basically in line with last year levels as well. If I can then ask you to turn to page seven to the business model. I know we mentioned it before, but I will continue to highlight the key aspect of price management. in our business model, it is key for us not only when raw material prices move upwards, but also when they decrease as we saw during the last year. We also look at our cost structure to see if and where we can improve. And one part of that is to continuously review our manufacturing footprint. And that's why we took the decision at the end of last year to consolidate our operations in California from two sites to one site. And if I can then ask you to turn to page eight, looking at the sales development. We delivered the sales of 5.3 billion SEC, which is down some 11% compared to the same period last year. Organic sales are down 12% in the quarter, while the acquisition of Star added 1% in sales. And basically, there are no effects in the quarter as the SEC is quite stable compared to where we were one year ago. Sales to automotive-related customers in total are down some, driven by a little bit lower production of light vehicles in the quarter. Fully on lower demand, sales to building and construction as well as consumer products are down compared to last year. And as I mentioned, the lower sales here in the quarter are also affected by fewer days of sales in the first quarter of 24. And this is important because since we don't produce to an order book, but to direct confirmed orders, number of days in a period is very important for us. Because if orders are not placed, we do not produce and we do not sell. We do not have an order book that we can produce to. In this quarter, sales prices are down compared to last year, and this lowers our sales amount but has no impact on the EBITDA in absolute terms, everything else being equal. And if we look at the organic sales, the lower sales are basically equally driven by lower volume and lower sales price. So roughly half and half is volume and sales price when it comes to the organic sales devolving. And if I can ask you to turn to page 10 for the financial overview. We delivered an EBIT of $905 million during the quarter with a margin of 17%, which is 120 basis points above last year. And that's primarily driven by better product and price mix. And it's also in line with what we did during the the second half of 2023, so no change there. Equity asset ratio remains high at 66%, and return on capital is also at high 18.8%. Cash flow was weak in the quarter. This is normal for us, and it's driven by high accounts receivables at the end of the quarter compared to where we started. It's not driven by any changes in the underlying terms and conditions, but rather that we open up the year with a very low level of accounts receivables. You may remember that Q4 2023, we delivered 1.4 billion a second cash flow, and one part of that was low accounts receivables. So that's where we start this year. So this is quite normal for us. in the first quarter. If I may ask you to turn to page 11, just look at numbers a little bit different. Sales are down 11% to 5.3 billion. And majority of this is organic sales. EBIT is down a little bit, 4% to 905 million. At the same time, we see an increase of 8% when it comes to operating margin from 15.8 to 17%. And if I can ask you to turn to page 12, looking at the development of the operating profit, we see that the negative impact from lower sales is basically offset by the higher gross margin and the lower OPEX in the quarter. And the lower OPEX is down compared to last year, driven by very strict cost control. And if I can ask you to turn to page 13, looking at Hexpool Compounding. Hexpool Compounding delivered sales of 4.9 billion SEC in the quarter, which is 12% below first quarter last year. And as mentioned before, the lower sales are driven by lower demand from building, construction, and consumer-related products, and also somewhat lower automotive combined with fewer days of sales and lower sales prices here in the first quarter of this year. Operating profit came in at 837 million SEC with a strong margin improvement, moving up 9% to 69% in this quarter. And if I can ask you to turn to page 14, I'm looking at engineered products. Sales for the segment came in line with last year at 373 million SEC. Operating profit at 68 million, which is somewhat below last year, basically in line. And the same thing goes for the margin, which is down a little bit. Not driven by anything. Changes is just smaller items affecting this segment in this quarter. And if I can then ask you to turn to page 15, looking at the working capital development, we can see that working capital is in line with Q123 numbers, while it's up versus Q4 of last year. And as I mentioned before, this is primarily driven by the development of accounts receivables And it's a normal pattern for us here in the first quarter. There is no change to underlying payment terms when it comes to receivables and payables. Also in the quarter, inventory is basically stable and flat. And if I can then ask you to turn to page 16, looking at the cash flow, we delivered a cash flow of 100 million SEX. where EBIT is offset by the growth in working capital, or more precisely, the accounts receivables. And that's normally what we see in a first quarter of a year. And then if I can ask you to turn to page 17, looking at net debt. Net debt decreased further, and at the end of Q1, that's a 1.5 billion SEC. with a net debt to EBITDA ratio of low 0.36. So we closed the first quarter with a very strong financial position. And then on page 18, just to summarize the quarter, it's a stable beginning of the year with an EBIT of 905 million SEK, and then improved EBIT margin of 17% compared to last year. Sequentially stable demand seen across most end customer segments. Compared to Q123, we see lower demand from building, construction, and consumer-related products. That has negative impact on organic sales development. Furthermore, also fewer days of sales had negative impact on sales in this quarter. as did the lower sales prices driven by lower raw material prices. Our work on sustainability continues, both in product development, our own footprint, and looking at the M&A agenda. So all in all, a stable first quarter with good EBIT at 905 and high EBIT margin of 17%. And with that, I conclude the presentation in itself, and I hand over to Q&A.

If you wish to ask a question, please dial pound key 5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key 6 on your telephone keypad. The next question comes from Julia Utbult from SEB. Please go ahead.