HEXPOL AB (publ)

Welcome to the HexBall Q4 2025 presentation. During the questions and answers session, participants are able to ask questions by dialing pound key 5 on their telephone keypad. Now I will hand the conference over to the CEO, Klaus Dahlberg, and CFO, Peter Rawson. Please go ahead.

Thank you, operator, and good afternoon, everyone. Thank you for joining this call, and a warm welcome to the HEXPOL Q4 presentation. This is Klaus Dahlberg speaking, and I'm here together with our CFO, Peter Rosen. If you please turn to page two, I will start with a business update and Peter will take you through the financials and I will then summarize the quarter. And after that, we're happy to answer your questions. If you please turn to page four. I will start by going through the Q4 demand and sales. If we look at the quarter, we managed to increase the volumes both in Europe and in North America. We maintained our strong market position, especially in compounding in a very competitive market situation. To do so, we are investing in our sales force to pave the way to be able to grow organically. Building and construction, wire and cable and also medicals showed increased demand and compensated for relatively soft automotive markets. Automotive was affected by holiday closings at our customers, the same pattern we saw at the end of last year. In general, sales was negatively impacted by FX and a weaker mix. But we have actively chosen to gain and protect volumes, staying close to our customers during Q4. Part of the volume we gained is so-called tolling. That means that our customers, mainly tire manufacturers, supply the material and we mix their material. This gives us a positive margin contribution, but the total sales value of that is lower. The European, and this is not a new business anyway, it happens regularly. The European market is relatively stable despite uncertainty, whereas North America continues to be soft. But we are beginning to see signs that insourcing, or as we say, captive conversion, is stabilizing both in Europe and in North America. If we look at Q4 performance, in the quarter we delivered sales of some 4.25 billion SEC, which is a decrease of 9%. That was mainly driven by a negative FX effect of some 9%, or 436 million SEC. The acquired companies, Piedmont and Capcom, added some 3% in sales, and that was offset by a lower organic sales of some 3%. We come back to that later in the presentation. Compounding Europe showed rather stable organic sales. We reached an EBIT of 508 million. and a margin of 12%. And that was impacted negatively by FX of some 61 million SEC and an unfavorable mix. The operating cash flow continued on a very good level. We reached more than 1 billion SEC in the quarter. And that is a result of we are constantly working on lowering our working capital. The Hexpol board proposes an ordinary dividend of 4.20 Swedish crowns per share, which is the same level as last year. As a background, I can say we have a very strong balance sheet allowing us to do that, and we have also the full support from the board when it comes to our strategic agenda going forward that I will come back to. When we look at sustainability, it's still a focus area for us. In 2021, we set the target to reduce the carbon footprint from our own energy consumption by 75% at the end of 2025, compared to the level of 2018-19. We have been very focused on both reducing the overall energy consumption but also using green electricity. Through these efforts, we managed to reach 80% reduction in total. And we are now working on setting new sustainability targets that we will launch during Q1 this year. If you please turn to page five, looking at the different business areas, starting with compounding. During the quarter, we managed to increase the volumes both in Europe and in North America. Sales of 3.9 billion SEC was impacted negatively by effects of 9%, but also by the mix. In general, we saw a softer demand in North American market, mainly driven by economic uncertainty, whereas the European market was more stable. We saw increased demand in building and construction, wire and cable, and also in medical. And automotive was in line with last year. Raw material prices were relatively stable. The lower operating margin was affected by an unfavorable mix and also OPEX in relation to sales. We'll come back to that, or Peter will come back to that. With our new leadership in the U.S., rubber compounding Americas is taking the next steps, capturing and growing the business with a high degree of customer focus. And we are making progress now in gaining new customers, contracts for captive conversion, which is in line with our strategy. If I switch over to engineered products, sales reached some 340 million SEK. There we also had a negative FX impact of 8%. And if we adjust for that, sales was in line with last year. EBIT increased compared to last year and reached more than 20%, which is very positive. If you please turn to page 6. M&A is an important focus area in our strategic agenda for 2030. And we have the financial resources to accelerate acquisitions. The uncertainty in the market has, however, impacted the M&A activity level. But we start to see an increased activity, even though it's from a relatively low level. We show this slide that you see now during our capital markets day in November. And I just want to reassure you, we have a very well defined process for acquisitions. And we also have an extensive shortlist of interesting companies for the group. If you please turn to page seven. Even though we have been experiencing uncertainty in the market for some time now, we believe that this will change. Our strategic plan for 2030 was presented in November, and the plan is set and the direction for the coming five years, and that is what we are actively working on right now. As mentioned, we can already see positive signs when it comes to captive conversion. in north america and we are investing in a new r d center located in italy and where we gather expertise in our compounding organization i have also already mentioned signs of increased activity in mna we are investing in optimizing our rubber compounding starting with one plant at the end of the year which will give us much higher productivity saying that we are, of course, following the development in our different markets very closely. With our toolbox, we know we are able to adopt our footprint if that would be necessary. Right now, however, ladies and gentlemen, we have actively decided to catch a new business and to keep our current volumes and even increase them. And as you know, Q4, It's a bit special in the sense that we have the early closings of our customers during December. And if we look into Q1 without giving any future outlooks, since we don't do that, but normally Q1 is a more normal quarter, if I may say so, where we don't have these shutdowns. And we expect a different outcome also when it comes to the margin. If you turn to page 8, it's time for the financial update and Peter will start with the sales development, I believe, in Q4.

Thank you, Claes. If I can ask you to turn to page 9, looking at the sales development in the quarter. As Klaus mentioned, you've seen we delivered sales of 4.3 billion SEC in the quarter, which is down 9% compared to the same period last year. At the same time in this quarter, we had a negative impact from currency effects of the same 9%. At the same time, we saw organic sales development with a negative 3%. offset by the acquisitions of Capcom and Piedmont at the 3%. Included in the negative sales development, in the organic sales development, we saw higher volumes with low single digit increase compared to last year. But this was offset by negative price mix effects of mid single digits. And I will come back to this later in the presentation. From a geographical perspective, Europe showed a small decrease in reported currency, but in local currency, Europe showed a small growth as did Asia. America showed a bigger drop compared to last year, the large part explained by the negative FX effects, but also in local currencies, sales were somewhat below last year levels in the quarter. If I can ask you to turn to page 10, just taking a look at the financial overview for the quarter, we delivered an EBIT of 508 million SEK versus an adjusted EBIT last year of 631 million. Half of this decrease when it comes to EBIT is explained by negative FX effects. And I just want to make a comment here. We're going to use the term adjusted EBIT throughout the presentation, but this is related to last year only. We do not have any one-time adjustments here in 2025, so it's only in 2024. EBIT in the quarter came in at 12%, which is below what we did the same period last year. Main reason for this is somewhat less profitable mix and OPEX in relation to the lower sales that we had in the quarter. At the same time, we delivered a very strong cash flow of 1 billion SEC in the quarter, which is double the EBIT for the same time period. If I can ask you to turn to page 11, just taking a quick look at the financial highlights for the quarter. Looking at the development compared to the same quarter last year, we see that sales came in at 4.3 billion with an EBIT of 508 below last year. And at the same time, we saw an EBIT margin at 11%. And if I can then ask you to turn to page 12, looking at the drivers of that EBIT development. Of the total decrease in EBIT of 123 million SEC, 61 million of that is related to negative FX effects. Removing those and looking at the underlying drivers, the main driver of the lower EBIT is the lower sales value. The gross margin percentage is on the same level as last year. The lower sales value is affected by two things. On the positive, we have somewhat higher volume, which is in the range of low single digit impact. This is offset by negative price mix effects in the range of mid single digit impacts. The negative price mix effect primarily comes from volumes produced and sold that have a lower sales value in absolute terms. The lower sales value and subsequently lower gross margin in absolute terms follow through to the lower absolute gross margin. There is also a third, smaller item affecting the gross margin percentage, but this one affects positively. Sometimes we are asked by customers to produce on their behalf and where they give us the raw materials to produce. We then produce, but only charge for our work and margin. This gives a low sales value by a high gross margin percentage. And we did see some of this volume in this quarter. However, this is not volume that we can plan for as it is of ad hoc nature. And last year, we basically didn't have any of these volumes. So it's something that we've had this quarter due for, but not last year. Our OPEX increased some compared to last year, mainly driven by acquisitions and salary costs and also some more IT costs since we're implementing a new ERP system in the U.S. If I can ask you to turn to page 13, taking a look at Hexbol compounding. For the quarter, we delivered sales of $3.9 billion. which is below what we did the same period last year, the decrease in sales corresponds to the negative effects of 9% that we saw. Recently acquired Capcom and also Piedmont added some 3% in sales, while organic sales are down 3%. The lower organic sales from a geographical point of view are seen in North America, while Europe showed sales on a similar level as last year. And from an end customer perspective, the higher volumes are seen with building construction, wiring cable, but also, for example, medical. Automotive volumes are on the same level as we saw last year. EBIT for the segment came in at 439 million SEC with a margin of 11.2%. And the decrease in EBIT is driven by the negative price mix effect and its impact on the sales value. If I can ask you to turn to page 14, take a look at engineer products. Adjusting for the negative effects in the quarter, sales were in line with last year levels. But at the same time, operating profit came in at, quote, 69 million sec, with a very good EBIT margin of above 20%. Both EBIT and margin is well above last year levels. If I can then ask you to turn to page 15, taking a look at the working capital. We continue to manage working capital efficiently. Despite adding Piedmont and Capcom this year, working capital came in below 8% of sales. And as before, there is no change in underlying payment terms, regardless of whether it's customers or suppliers. If I can then ask you to turn to page 16, looking at the operative cash flow in the quarter. As mentioned before, we deliver a very strong cash flow of 1 billion SEK, primarily driven by efficient management of working capital, which is down more than 500 million SEK, while keeping depreciation and investments balanced. And then if I can ask you to turn to page 17, looking at the net debt, it stands at 3.1, 3.2 billion SEC at the end of the year, with a net debt to EBITDA ratio of 0.9. It's somewhat higher than last year, and this is driven by the acquisition of the minority share of ALMAC, as well as the acquisition of Capcom during this year. So all in all, when we close 2025, we continue to stand with a very strong financial position. And with that being said, I hand over to Klaus to summarize the quarter.