Trelleborg AB (publ)

Ladies and gentlemen, welcome to the Trierborg Audiocast Q1 2022. Today I'm pleased to present Peter Nilsson, CEO, and Fredrik Nilsson, CFO. For the first part of this call, all participants will be in a listen-only mode, and afterwards there will be a question and answer session. Speakers, please begin.

Thank you. Yeah, Peter speaking, Peter Nilsson speaking, CEO, and also joined here on the call by Fredrik Nilsson, our group CFO. here to discuss and present our interim report for the first quarter of 2022 and as usual we are using a deck of slides which has been on our homepage for some time and we'll follow that of course throughout the call so starting there quickly on page number two agenda our usual agenda for our calls starting with some highlights and the business area some comments on the business areas commented by me and then frederick will support by giving some further guidance on our financials and then somewhere at the end and then finishing off with an outlook and some comments on the outlook for the running quarter and then also because ending the call as usual with a q a session So then quickly moving to page number three, headlines for the quarter, strong growth and profitability. All in all, a very good quarter for us when we look at the figures delivered in the quarter. Sales ending up a little bit north of $7 billion, which is an increase of 22%. Also maybe before, sorry, just to clarify this, this is of course figures related to continuing operations, which we're going to comment a little bit further on. As we know, following this agreement of design of wheel systems, it's a new set of figures, a new set of new new set of uh compared comps here as well but i'll get back to that and i trust all of you is aware of this but but just to clarify and to avoid any kind of early misunderstandings so once again the sales in the quarter a little bit north of seven billion an increase of 22 organic sales up by 30 percent and then currency supporting by seven and a smaller m a impact as well providing a support of plus two percent ebit is up by 25 percent to a little bit north of 1.2 billion corresponding to a margin of 17.3 and all in all this is then the best quarter in terms of sales as well as EBIT as well as EBIT margin. Items affecting comparability ending up at minus 25 which is a mix of some pluses and minuses which is further elaborated on in the report. Cash flow a little bit weak in the quarter but nevertheless let's say firmly positive. Cash flow impacted by this substantially higher sales of course but also on top of that we have also let's say on purpose building inventory in order to address this increasing uncertainty throughout the quarter. also as i already commented on i mean we also during the quarter we signed an agreement to divest wheel systems the oklahoma rubber company and therefore it's reported in this set of figures as as itself for sale but nevertheless of course i'll get back and comment on it and also to note yesterday we signed an acquisition a smaller acquisition but nevertheless strategically very interesting for us and and then adding some new capabilities and, of course, new sales into ceiling solutions, medical and healthcare segments. This company, AirMed, once again, where a press release on that one was sent yesterday. Then looking, moving to page four, commenting on organic sales. As already stated, strong organic sales basically everywhere. Europe strong at plus 12, America's very strong as plus 21, supported them by very strong sales primarily in North America. And then Asia and other markets also a solid plus eight, although where we have Asia impacted by the clear softening in China, linked to these new restrictions and measures connected to this continued outbreaks of COVID-19. But nevertheless, all in all, a very solid quarter where organic sales in total for continuing operations is up by 13 percent. Maybe also commenting on this slide, I know Fredrik gets back to it, but a few comments on organic sales, which is the question we already received there in between our report and the presentation, is roughly two-thirds of the organic sales coming from volume and one-third coming from pricing. Of course, we have some differences between different segments, but that is kind of the overall split that we see from the organic sales. Turning to page five and the next agenda point, business areas. Moving then quickly to page six to comment on industrial solutions. Very strong growth and record profitability in the quarter organic sales up by 21%. Very strong organic growth on the backing of this solid order book that we've been building at the end of 21. Sales up significantly in all geographical areas, fairly evenly split. And also, I mean, we must say also sales to all market segments increased, which then includes also automotive actually for us, where we have been building or improving our market share since in this business area due to that we have a good representation on new platforms being launched in the quarter or growing in the quarter. So all of the segments growing, all of geographical areas growing. And then also we have, as everybody else, we've been hit with fairly strong cost increases. coming both from raw materials and freight and energy. But overall, we have shown that we have a very good pricing power and we've been able to offset more or less everything or everything in the quarter isolated. And then as a result of all of this, EBIT and EBIT margin increase to new records for Trelleborg Industrial Solutions. Moving to page seven. Commenting on Trello box ceiling solutions, organic sales, 8%, where we have good growth in America and Europe, but a little bit lower in the sales in Asia than as a result already commented in this area due to new restrictions and measures in China linked to COVID-19, so a little bit of a mix here between geographies. We see sales, general industry, healthcare, medical and aerospace increase significantly and supporting this good growth figure. Deliveries automotive also in this area actually grown a little bit more but there this is due to the fact that we have more exposure here to the aftermarket for certain products and we've been able to offset sales, lower sales OE with higher sales to to the aftermarket and thereby actually overall been able to grow the automotive even due this segment being somewhat challenged in the quarter. EBIT and margin improved to higher volumes and price adjustments generally well managed and also showing that we are having a good pricing power and we are able in a quick way to manage this let's say inflationary pressures hitting us more or less all over. All in all, a very good quarter for ceiling solutions and delivering a very solid 24% on the back of a solid organic growth. Moving to page 8, and now just to clarify, I mean, this has been not any news, of course, for those of you following us, but nevertheless, it's the first report where we comment, let's say, where we're reporting wheel systems as an asset held for sale. Then turning to page 9, just a quick refresh here. I mean, we are doing this divestment since we feel that the divestment of wheel systems will deliver a more profitable, less cyclical and also with a substantially improved sustainability profile for the remaining of Trelleborg. We're also getting more coherency in the portfolio, market exposure and drivers for the remaining Trelleborg and of course also providing us quite a lot of strength to continue to accelerate growth in selected segments and of course on top of this also we wouldn't have done that this deal unless we believed it was an attractive valuation for Trelleborg. So during the page 10 just also on the same Same topic, buyer Yokohama, it's a good add-on for Yokohama, so I understand their interest fully in wheel systems, in supplementing their offering and also creating a more balanced profile for Trolleyborg, so a good fit for Yokohama. And we feel also that this valuation that we're getting here is showing that this is a good asset, which is then good for us and good for Yokohama. Purchase price, 2.1 billion, with a smaller part of that linked to the performance in 2022. And when this is kind of concluded at the end of 2022, that is our, let's say, best guess today, then that will also result in a capital gain of some 6 billion for Trelleborg. So this is about the deal. And then moving over to page 11 to comment on the performance of wheel systems, very strong growth. in the quarter organic sales up by 33%. And I mean, just a quick comment on that. I mean, they've just said for the other part of Trelleborg for kind of the continuing operations in Trelleborg, we say that two thirds is linked to volume and one third linked to pricing. Here is roughly the opposite where two thirds is linked to pricing and one third is linked to volume. That is what we see. Strong demand basically for all segments and for all geographies actually especially americas we've seen now that the increasing demand for special agricultural tires in america is is supporting us strongly costs has been increasing a lot for raw materials energy and transportation but we believe also that these figures shows that we actually have also in this segment the good pricing power and good models in place to to compensate ourselves for this increasing input costs uh of course on top of this but besides the pricing we have also been running the factories within wheel systems at high efficiency and thereby also making some positives coming also from these higher volumes of course so that was kind of my comments on the business areas and Trelleborg wheel systems and page 12 then an agenda point moving to financials and leaving to Fredrik to start on page 13 then

Thank you, Peter. Let's then move to page 13 to talk about the sales development. Organic sales increased in the quarter by 13%, and total sales growth by 22%. And we have 2% impact from acquisitions, and we have 7% impact from currency translation. Let's move on to page 14. As you can see on the Paige, this was another good, solid quarter with strong organic growth in historical context. And as you also can see on the graph, this was the fifth quarter in a row where we were on par or above our growth target. Moving on to page 15, showing the sales development on the rolling 12-month basis for the continuing operations. And as you can see here, we're also on the highest level, so a new all-time high. Moving on to page 16, looking at the EBIT that increased by 25% in the quarter from 982 million to 1,230,000,000. And also margin went up from 16.9 to 17.3. We have a positive translation impact foreign subsidiaries by 55 million in the quarter, comparing to the corresponding quarter last year. And looking, as Peter mentioned, in the business areas, we saw solid margin improvements in both industrial solutions and in trailer board ceiling solutions. Moving on to page 17, as you can see, the positive trend continues with increased EBIT and higher margins. Moving on to page 18, some further details in the profit and loss statement. Peter mentioned that we have items affecting comparability of minus 25 million in the quarter. It comprises of restructuring cost of 75 million in the quarter. We have made some capital gains of sale of some assets of 140 million. And then we have also made a provision of 90 million attributable to the group's capital employed exposure in the Russian market. So that sums up to the minus 25. You can also see that we have a slightly higher financial net in the quarter. We are seeing increased interest rates, but we also have some impact from preparing capital structure because we are now selling, as you know, the printing blanket business and trolleyboy wheel systems. The tax rate in the quarter was just below 26%, which is in line with our earlier communicated guidance. And you can also see on this profit and loss statement that the net profit from this continued operation shows strong improvement due to the profit growth in Wills Systems. Moving on to page 19, earnings per share for continued operations, excluding items of fixed comparability. It went up with 21% from 2.68 to 3.25. And if we look at the group as total, we were up 18% in the quarter. Moving on to page 20, looking at the operating cash flow amounted to 328 million in the quarter, 484 last year. As you can see here, we have a positive impact from the higher earnings generations in the quarter. And then we have a little bit of a higher working capital in the quarter linked to the increased sales, which ties up more accounts receivables. And as Peter earlier mentioned, we also have built a little bit of a strategic inventory to secure stable supply to our customers and then we are also back to a more normal capex level in 2022 cash flow conversion 76 on the rolling 12 months basis on page 21. moving on to page 22 looking at the gearing and leverage development as you can see the net depth equity ratio 23% in the quarter, so very low, very solid balance sheet. And then also looking at the net debt of EBITDA, we are now down to 1.1. Moving on to the next page, looking at return on capital employed, up to 15.7, which is the highest year for a long time. And that is of course linked to the strong profit generation. Moving on then to page 24, I will finish off with some financial guidelines for the full year of 2022. And this is for the total group, including assets held for sale. CapEx unchanged to 1.4 billion. Restruction costs also unchanged to 300 million. Amortization of intangible assets is reduced from 375 to 300 million. And that is because we are, according to IFRS, obliged to stop amortization of assets when you put them as assets held for sale. Underlying tax rate, 25% for the group. As earlier communicated, it will be 26% for continuing operations.