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.

Thank you very much, Peter. If we look at the volumes, we could see an increase in the quarter. And as I said, that was, let's say, a deliberate move from us to protect the volumes in our different markets. We believe we will benefit from that when the markets are coming back. Europe showed a stable sales compared to last year. In North America, the demand was somewhat lower, and I guess we see it's affected by a high uncertainty related to not the least the U.S. trade policy. Engineered products was stable with very good profitability. We managed to reach and actually go above the set target when it comes to our carbon footprint. And we continue to focus on our strategic agenda for 2030. And I think those three pillars is very essential for us about organic growth, M&A, but also operational excellence or efficiency. And despite the fact that we have been experiencing uncertainty in the market for some time, we believe that this will change gradually, as I said before. And therefore, the plan we have set, the strategic plan for 2030 is essential for growing the company. And I also mentioned we see starting to see progress and that will contribute to our overall performance. And I want to emphasize again that we are of course following the development in our different markets. And we showed also in 24 that if necessary, we will adjust our footprint, but we believe we have a competitive edge. if we are able to be flexible when it comes to increased volumes, and also if that would come short-term, let's say. So by that, we conclude the presentation of the fourth quarter, and we open up for your questions, ladies and gentlemen.

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 Henrik Hintz from ABG Sundahl Collier. Please go ahead.

Hi, Klaus and Peter. This is Henrik Hintz at ABG. So this quarter, except for the FX headwinds, seems very similar to last Q4. So I'm just wondering, so far in January, have you seen automotive users reopen affected like so last year, and would it therefore be reasonable to assume that The margin weakness here is sort of isolated to Q4 like it was in the previous fourth quarter.

Hello, Henry. Thank you for the question, Klaas. So the pattern we see right now is actually very similar to last year. So it's typical that they lower their, let's say, stock, you know, in December. And then we get the push effect in January. And that is the same pattern we saw last year.

Yeah, okay, very good. And then another question for me. You mentioned that volumes are up and that automotive is in line with last year, but organic growth was still negative due to mix. So what mix effect drove this except for the negative effect from automotive, which shouldn't have affected if automotive was in line with last year?

Hi Henrik, Peter here. The mix effect is driven basically by two things. One, there's a relative shift from automotive into some of the other end customer segments. And as we've said before, automotive is a very good customer segment for us. And generally speaking, it's also a high value products going into automotive. So that has a little bit negative impact on the mix moving over to other end customer segments. But also within end customer segments, there's somewhat negative mix effect in the sense that we're also taking volume with a lower sales value. So it's a combination a little bit between the end customer segments and within end customer segments to protect the customer.

Yeah, so when it comes to these volumes within customer segments, is that for competitive reasons that you mean that you have to take lower prices?

It's more... primarily actually taking other volumes than lowering prices, but taking volumes that we've taken just to protect the relationships and the market positions.

I think it's important to emphasize, Henrik, that, I mean, we never in general lower prices, let's say. It's a very strategic decision to keep, let's say, certain customers or keep certain volumes with a certain customer. So that's what we're aiming for.

All right. Thank you very much. That's all for me.

Thank you.

The next question comes from Johan Dahl from Danske Bank. Please go ahead.

Yes, good afternoon, everyone. On that same topic, you know, talking about sort of defending share within those customer segments, how much would you say are you willing to commit to defending that? I mean, if you look on these volumes that you're taking in Q4 and looking into next year, sort of how flexible are you likely to be on the pricing to sort of defend or possibly increase market share?

Hi Johan, Peter here. I think two aspects to the answer of that question. One, Q4 is always a very special quarter in the sense it becomes very, very short. And this year we saw even more extended customer shutdowns in December compared to last year. So it became very short and quite competitive quarter. And that was one of the reasons that we decided to take volumes to protect customer positions and market positions. How that translates in going forward, that's a strategic decision. It does not mean automatically that we will continue to do that when we have more normal quarters with more normal volumes and customer patterns.

Alright, gotcha. Just to clarify, these tolling volumes, which you accepted this quarter for, but not last year, if I understood you correctly, is that included in the references you make to organic volume performance for the group, year-over-year, which you say is slightly positive?

Again, two aspects to your question. First of all, actually, it's more on the customer side. If they ask us to take these volumes, then we are very often happy to do that. So it's not do we accept or not. It's more if the customers have the need and we are often most willing to do that and support them. Second part of that question, is it included in the volume? Yes, it's included in the volume number, but it doesn't have a very large impact on the volume increase in itself. It just has a more impact on the gross margin percentage explanation because fairly small volumes in relation to the totality, but it has an outside positive impact on the gross margin percentage.

All right. On the OPEX costing piece, you talked about strengthening sales efforts, etc., Again, on that question, you know, how do you aim to invest in that in sort of in the coming years? How much money are you committing to that to drive volumes better? I mean, we're seeing signs of it inflating at the moment.

So it's very different of course where we are in Europe or in North America but for us it's essential to be present in the market and we have done for instance one investment in a key account in Europe to be able to follow some of the bigger players. I don't have a number for you, Johan, but we see that as very crucial for the business, of course, to have a strong sales force.

And if I can add to that, Johan, it's not going to change the OPEX picture of the company. It's targeted staffing.

Okay, final question. You talk about wiring, cable construction and medical equipment. being sort of positive compared to the average in the group. Is that positive for your mix, neutral, or slightly negative?

Peter here again. If we look at it from an outside point of view, it's probably balanced. So I wouldn't say automatically that that means a shift in the mix effect. It's more related to within those segments. How do we move? Which volumes do we take? So that comes back to... Thank you very much. Okay, thank you. Thanks. Thanks.

The next question comes from Andres Castanos, modeler from Barenburg. Please go ahead.

Hey, thank you for taking my question. Just about any actions that you may be taking regarding the strength of the Swedish krona. Do you plan to maybe diversify your funding and maybe start borrowing dollars maybe this increases your appetite to acquire businesses in Europe rather than the USA. Yeah, any thoughts about actions on that regard? And if you think this is a phenomenon that could continue over the long term. Thank you.

Hi, Anders. Peter here. When it comes to the SEC, US dollar, Euro development, I think I'll leave that to politicians and somebody else. However, that being said, when we look at our currency today, exposure that we have, it's primarily translational FX effects. So very few transactional FX effects since we buy, produce and sell in local currency. So the effect that we have is primarily translational FX effects. And when we look at the way our funding is structured, it's primarily in SEC. And then we have certain local funding as well. So, of course, we monitor it, but it hasn't triggered with us yet any change in it. But we are looking at it and monitoring if we should have funding in other currencies as well. But at the moment, we are comfortable with the way we have our funding structure.

Okay. That's helpful. Thank you.

As a reminder, if you wish to ask a question, please dial pound key 5 on your telephone keypad. The next question comes from Gustav Bernebled from Nordia. Please go ahead.

Yes, good afternoon. It's Gustav here from Nordia. I thought maybe just to build on these tolling volumes, that you comment on are coming more at hockey. I mean, is there a risk that this is a structural change we are witnessing here in the market and that, you know, that we should have a look at the longer-term growth margin and maybe we should expect it to come down or anything there?

Hello, Gustav. This is Claes. I would say not at all. The background for the tolling volumes is usually when some of the bigger, let's say, tire manufacturers, if they have a change in production, if they build a new plant, for instance, or if they do maintenance on their equipment, that's when they ask us usually to do the tolling. And given the situation we are in right now, it fits quite well, as Peter also explained, to take on that volume. But that is, that will not, let's say, change our structure or anything. It's just something gives us coverage, you know, for our cost in our plants.

it's a i would say it's a win-win situation and if i may add historically we've had these volumes come and go uh not driven by us but driven by customer needs uh it's just that in q4 it became more visible because it from a sales volume perspective it's a short quarter

That's clear. And then maybe just to build here on your comment on seeing this, you know, pattern that we saw last year of a catch-up in January from automotive. Is there anything, I mean, when you look at it, is there anything that speaks against the better mix here in Q1?

We're not going to give in a forecast, but as Claude said before, the normal pattern is weak margins, gross margins in Q4, driven by short period, low volumes. And typically, we see volumes come back in January because the orders that didn't pull through in December, they typically come in January. And so far, that's the pattern we see this year, same as we saw last year.

Okay, that's very clear. And then just, sorry, one more. When you look at the competitive landscape and so forth, are you seeing among smaller players, I guess, any signs of bankruptcies or similar?

Simple answer is no, we don't. They are still there. They seem to prioritize volumes ahead of profitability, but they are still there.

Okay, so it sounds like you are really experiencing price pressure in the market?

Some of the competitors, they've been doing this for more extended, much more extended than this quarter. But since you asked specifically about the smaller competitors, they are still there.

Okay. But you don't? interpret this or see that price increase or price pressure in the market has increased here in the last quarter?

I mean, we've seen certain price pressure throughout the year, and we've spoken about that in the other quarters as well. What makes Q4 more special is that it's a very short quarter. So then if you want the volume, then it becomes even more competitive because of the calendar effect in the sense that customers are closing down.

Yeah, okay, very clear.

Thank you very much.

Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

So I just want to thank you all for participating and wish you all the best and see you after Q1. Thank you so much.