Trelleborg AB (publ)

Hi everybody and welcome to the presentation of our quarterly tree report for 2022. As usual, when we at Trellebag are presenting the results, I will kick off giving some overall headlines and also comment individually on our business areas. And then Fredrik, our group CFO, will take over and guide you through the financials. And then I'll do the summing up. And then Fredrik and myself is then opening up for Q&A at the end of this session. Normal agenda, starting off with some general highlights, followed once again by business area comments, financials by Fredrik, then some summary, and also especially then some comments on the outlook for the running quarter, and then finishing off with the Q&A session. Highlights. We have a very strong quarter in more or less, if not all aspects. Sales is record high for an individual quarter, of course, benefiting from currency. But nevertheless, the reported figures are the highest sales figure ever. for Trelleborg in an individual quarter. Organic sales, very strong, 15%. Then, as I already commented, also supported by the weak Swedish krona. And also some benefits from M&A that has been done in the last year. EBIT up more than sales by 34% and then touching almost 1.3 billion for continuing operations, which then corresponds to, let's say, a margin of 17% highest ever, both highest ever quarterly EBIT and also highest ever margin for a third quarter. So very good financial performance. Get back also coming from excellent performance in both business areas. Still running some efficiency programs. So we're also accounting for some items affecting comparability at 68 million, which is fully in line with our overall guidance. Cash flow. a little bit short of a billion, still impacted by somewhat higher inventory. We have a few hundred million Swedish crowners, too high inventory. Fredrik will comment on that, which we expect to improve in the next few quarters. And of course, also impacted by the very strong sales growth in count receivables going up. But I mean, because of normal development in terms of percentage, no weakening. But once again, where we are a little bit... Disappointed a little bit behind planning is for the inventory, which is obvious. We have been short of some raw materials and we've been buying a little bit more to safeguard the manufacturing. As it's now flattening out a little bit, we do expect that to improve in the next few quarters. Also happy to have concluded two acquisitions, two strategic acquisitions. We can say both of them very strategic and very synergistic. One bigger, Minnesota Rubber and Plastic. which we'll get back and comment more on that individually, but also a smaller one with bases in Germany, MG Silicon, which is then reinforcing us in some smaller segments for aerospace and also adding capabilities as well as kind of pure capacity in some of the segments aiming at aerospace where we are still pushed by a very high demand and with some challenges in keeping up the supply. Also a smaller acquisition, also strategic, but in a different dimension, was concluded here in early Q4, which is a company called IST, which is basically supplementing our business for pipe sealing, for sewage pipe sealing, then focusing especially on the aftermarket for that segment. So this is kind of the highlights for the quarter. uh sales developing nicely all over uh overall as i said a good 15 percent organically as you can see from the figures coming primarily from very strong americas and also for us a very strong asia even though asia still being impacted by negatives coming from china well known but all over the rest of asia performing very well and also in this is other markets also which is kind of australia which is also for us good in both some small mining applications and also actually some oil and gas sales also coming in, especially to Australia. But overall, and then Europe, somewhat weaker, well-known and commented by everybody. So what we see now, a continued Very strong Americas, continued strong Asia. Of course, we're with a little bit question mark on the China development, but we see that more as a potential upside and a potential downside. We don't really see China getting any worse. Of course, we don't know exactly how the COVID, potential COVID closures or COVID continued lockdowns related to COVID will impact us. But as we see it, we do believe that that we're going to see a slight improvement from here and onwards, although, once again, with some uncertainty. Europe is the weak area, and that is the area where we see some weakening. We don't see it kind of all over Europe at the moment. I mean, honestly, more or less all segments, as you see also when we later on comment on the business areas, all segments actually developing nice in the quarter, but... the construction segment in Europe and also some we have some smaller business linked to consumer spending like seals for electrical bikes and stuff like that but that's kind of neglectable in the total frame of things but nevertheless these are segments where we see kind of also a major downturn this we call a thing called discretionary spending by consumers. Although this is, once again, I don't want to highlight that being a big area for Trelleborg. It's a very minor area, but that is one area where we do see a weakening. Overall, nevertheless, very good performance, a very solid development, of course. Also, this is a mix of pricing and volumes, but still volumes is up in the quarter, and we do expect it to continue to be up, although maybe not on this pace as we have seen in quarter three. Business areas, industrial solutions, strong growth and margin improvement. As you know, we've been, I would say cleansing is maybe the wrong word, but we have reinforced and we have improved the portfolio of industrial solutions and we continue now to push in all areas of industrial solutions and we continue to benefit from this being more Forward leaning, then mainly backward leaning, where we've been a few years back, where we were more kind of fixing things and improving things. Now it's more to push sales and make sure that we are kind of developing in all dimensions. And it means that basically all Market segments is developing favorably. Once again, it's construction segment a little bit negative, but more or less everything or everything else you can say is developing nicely. We have some very strong in aerospace where we have some small medical business here benefiting. We also see the oil and gas business, which is still a part of this, developing very nicely. So all in all, very nice development. We also see favourably on all geographical markets. As I already commented, here we have some benefits in Asia and Australia coming from this product business, which is continuing to be very strong. Tunnel seal intake, harbour construction intake. And also some mining intake, oil and gas intake is very good for the markets, especially for the markets outside of America and Europe. We see some slowdown. European construction already commented on that as basically the only negative that we firmly see in the quarter. Cost increases have always been hitting us, as everybody else, a very strong inflationary pressure in raw materials, in energy, in labor. But we've been able to offset this, of course, by pricing. We've been very active in the pricing. We have very solid positions, have a strong market position, strong pricing power, and we've been executing on that very rapidly and successfully. And of course, on top of that, also pushing efficiency as the volume comes in. We have also been able to offset some of the inflation by the higher volumes. So all in all, excellent quarter in basically all parts of industrial solutions. We don't see any... True weakening of this, but nevertheless, we do see what is happening around us and we see the macroeconomics and that's why we are a little bit more careful looking forward when we look at the markets. But we are entering Q4 with record high order books and we are still growing the order book in the quarter, although with not... So order intake, maybe that's the comment also, we take the full Trelleborg order intake, we continue to be higher than sales in the quarters. We're still building order book on the totality. Sealing solutions, organic sales, a solid 13% as well. Double-digit growth in most geographies. Sales here also basically in all areas developing nice. Industrials, automotive picked up fairly nicely in the quarter compared to before, probably with some easing of these component shortages, which has been... Let's say stopping the automotive industry. We still feel that there is kind of pent-up demand for some automotive applications. We do expect that also to continue to improve from here onwards. Healthcare and medical, which is two of the areas which we are focusing, especially in facility solutions. Healthcare and medical and aerospace continue very strongly. We talk about... several tens of percents of growth in order intake. So that is very, let's say, satisfying that we see benefits of these extra efforts in these two areas. EBIT, highest level to date in a quarter. Very nice development. You could comment on the drop through on the sales. But here also, we have some LTA. There's still some pricing impact coming in later. But nevertheless, all in all, it's good. We also have to note, I mean, although quarter three last year was on a record high EBIT level, it's also a very tough comparison for the seasonality point of view. So we are very satisfied with the margin in the quarter, although it is a drop down from a year ago. But once again, if we do compare with the margin a year ago, that was a very tough comparison. We also have some M&A coming in here. We have some minor impact from integration costs from that. And also we are actually building up resources, especially in healthcare, medical and aerospace, which is kind of impacting us in a quarter from a cost perspective. But we're getting good returns on that, that order intake is growing. So that is kind of a very wise decision actually to do it, even though it is kind of an immediate cost up compared to a year ago. So all in all, very solid performance ceiling solutions, good order intake also. Here we should also, which we have more, can also comment order intake continues on a good level here in october as well and we don't really see any weakening there is this kind of geographical differences where we see america is stronger asia is stronger and europe is somewhat weaker but nevertheless on the total total frame of things there is no really any meaningful change if you look at these first weeks of of october so very solid solid business and they continue to be solid going forward And then Minnesota Rub and Plastic. On this one, we could actually, news of today, where we have all approvals is in place now. So we do expect this to close in the next few days, actually. We need to arrange some money to be sent to US and to get that done and get it into the bank accounts before we actually do the closing. But there is nothing stopping us from closing this now in the next few days. So that's going to be, as we look at it today, it will be in our books for the, let's say, final months of the year. um this is i mean as we order the common this is really a step change for ceiling solutions we have had a very strong let's say position in europe but with this we also get a similar position in north america it's a widening of our general footprint we're touching a lot of customers and we're going to have a lot of opportunities for cross-selling in both directions we have a kind of a wider offering in ceiling solutions than they have in Minnesota. But they also are very strong, especially in actually very strong in some rubber segments where we are a little bit weaker. And so that is a good, very good supplementary acquisition, which is also in the middle of the core offering of ceiling solutions. I mean, we are really knowing most of the application. We know most of the customers, but we're getting a stronger footprint in all of this. Yes, we call it sailing in our own waters and it's highly synergistic. especially on the sales perspective, but also in some cost dimensions. And especially we say three major segments is getting reinforced, medical and healthcare. Food and beverage is also an area where Minnesota has been very strong, but you need a lot of certificates, you need a lot of approvals. to get, let's say, accepted in several of these applications. And that is where Minnesota has the kind of honestly a wider offering than we have within ceiling solutions. So this is kind of a spot on acquisition for us. And now, of course, we understand that the valuation is a little bit high on the high side, but also we have highly synergistic. And once again, it's really reinforcing us in a strategic way in a multiple of dimensions. So that's going to be in Trelleborg here in the next few days, hopefully. And then we will move on and start with the integration and make sure that we get the synergies extracted as soon as possible. Trelleborg Wheel Systems, of course, still part of Trelleborg, reported as SSL for sale. And on this one, I can also say that the process for the divestiture is ongoing exactly as planned. We do expect this to be closed by end of the year, plus minus. It could be, depending on when we do it, before Christmas or after Christmas, it could be But nevertheless, there is no obstacles and everything is kind of running according to plan. So nothing changed in this perspective and nothing changed compared to what we have commented before. Looking at the wheel systems, since we're still getting the money for this into our books, although not within continuing operations, developing very nicely, strong organic sales driven by, of course, substantial price increases. And we see basically growth, continued growth in all tire categories, as we call it, and in most geographical markets. There's one Very strong market in the Americas, all over both North and South America developing very nicely for us. Where we see, let's say, a downturn is the aftermarket for agri in Europe, which we see the farmers as being more careful, and we see that as an impact from the Russia-Ukraine war. although the OE market in Europe is still holding up very well. But honestly, there is some carefulness. And this business is also kind of a double dip, if you say, because we have end market being a little bit careful, but we also have the end distributors being a little bit careful. So that is why this impact from this is noticeable. Here is also a major impact from raw materials and energy. As you know, here is kind of a little bit delayed impact on some since we're running with the formula towards the regional equipment manufacturers. So the full impact from the price increases is not yet in this quarter. We're going to see some continued benefits from price increases kicking into this quarter. But nevertheless, all in all, we are happy that we are able to basically report the same margin as a year ago, although a few tens of potential points down. But nevertheless, on the same level, although This has been heavily impacted by both raw materials, energy and freight costs. So we are happy with the performance and well managed by the management of wheel systems in these somewhat difficult circumstances as they are kind of preparing to be divested but still run and still very focused and still developing very nicely and let's say contributing with nice profits also for us as long as we are remaining the owners of it. And also some comments on sustainability. Some what new slides for us just to show this, of course, now a group. This is including wheel systems, but including wheel systems, we see continued notes will be improvements. And this is kind of both in absolute consumption of CO2, but also from CO2 in relation to sales is going down. But of course, this picture going to dramatically change when we are kind of exiting wheel systems and we're going to get back to you that we're going to be dramatically better in all these KPIs when we kind of exclude wheel systems from this. But nevertheless, as long as we're owners of wheel systems, we're going to continue to work on improving the wheel systems footprint as well as the rest of the group. In the other KPI, we're working heavily to increase renewable and fossil-free electricity in relation to total electricity. That is also being improved, although with somewhat smaller steps. But also in this, it's going to be improved substantially when we exclude. wheel systems from areas, since wheel systems is manufacturing, is exposed to some geographies where it's very difficult to buy renewable electricity. So some countries where they are operating, there's actually no availability of this kind of more green energy. But nevertheless, good development and increasing focus on this. And we're going to get back to you with a more comprehensive update on sustainability in the next few months. So this is what I want to say and leave to Fredrik to comment a little bit about the financials before I get back and comment again and give you an overall summary and comment on the running quarter. So please, Fredrik.

Thank you, Peter. Looking into the organic sales in the quarter, we were up 15% and total growth in the quarter was 28%. So we have a little bit of support of M&A of 2% and then currency added another 11% to the sales. Looking at year to date, we have an organic growth of 13% and reported 24%. Looking into the sales trends, we have now seven quarters that has been on par or above our growth target for the group. So as you can see here, there is a strong trend over the last two years. Looking at the sales development, as Peter mentioned, we have a record high sales in the third quarter, and you can see also there is a good upward trend. Looking at EBIT, strong EBIT, the best third quarter ever. So we are up 34% and the EBIT amounted to 1,278,000,000 SEK. We have good growth in both industrial solution and ceiling solution supported by the strong sales growth and also the price adjustments implemented during the quarter. Looking at the growth of the EBIT margin, we were up from 16.3% to 17%, so also a nice development in the quarter. Looking at year-to-date, you can also see there is a really nice increase of EBIT, and we also continue to improve the margin year-to-date. Looking at the more long-term trend, you will see that we have a rolling 12 months EBIT of 4,755,000,000 with a margin of 17%. So actually you can see here up 25% a year ago. Looking into the profit loss statement. Looking into some more details, you have items affected comparability of 68 million. That is entirely related to restructuring costs. If we continue a little bit down to the income statement, looking into the financial income and expense, you can see there is a quite large increase of 34 to 69 million SEK in the quarter. It's linked to that we have a higher debt due to that we have bought back our own shares. We are also seeing higher interest rates. And there's also been a little bit of non-recurring items linked to the acquisition that we have recently made. And then there is also a more technical thing here, because now we are looking into continuing operations where we have had an interest income from discontinued operations that has now been less... That is why you see an increase in the financial income and expenses in the quarter. On the total group, that has been eliminated, so no net impact on the group. It's just a split between continued and discontinued. Looking further down into the income statement, looking at the taxes, we have 24% tax rate in the quarter, which is actually slightly better than we have communicated as the guidance, where we have said 26% for the continuing operations and 25% for the total group. And earnings per share continue to grow nicely as well, up 38% in the quarter. Looking then at earnings per share, you will see 49% up. And if we look at continuing operations, exclude items affecting comparability, plus 38% in the quarter. And then if we look at nine months, it's 40%. And if we look at only continuing operations, it's up 30%. Looking at the cash flow, Slightly less than a year ago, with an operating cash flow of 928 million. Strong, continued improvement from EBITDA. And then, as Peter mentioned, we have a slightly less cash flow from working capital, and mainly related to that we are a little bit high on the inventory side. So there is a couple of hundred millions that we are now working to try to reduce the inventory. I will say it will not be out by the end of the year, but we're working into during the first quarter of next year. Looking at CapEx, more or less in line with last year and fully in line with earlier communicated guidance. Looking at the cash flow conversion, 63% in the quarter, it's just reflecting the higher business activity we have with higher sales that drives a little bit more working capital. Looking at net debt and the gearing, We have net debt divided by equity of 33%, slightly up, but when we need to have in mind that we have bought back own shares for 1.2 billion in the quarter, so that has, of course, an impact on our net debt over equity. And then, of course, also impact in net debt over EBITDA slightly, so at 1.5 when we are ending the third quarter. Looking at return on capital employed, continue to improve. Of course, slightly more capital employed in the quarter, but that has been well offset by the higher earnings generation. Looking at some guidance for the full year. CapEx, 1.4, exactly the same as we guided at the end of the second quarter, so no change. Restructuring cost, 300 million for the full year, also unchanged. Amortization of 300 million for the full year is also unchanged. But of course, as Peter said, with Minnesota coming in, that will increase for the last two months during 2022. And underlying tax rate, 25% for the group, also unchanged, and it will be 26% for continuing operations. So completely unchanged, excluding any acquisitions. So by that, I would like to hand back the microphone to you, Peter. Thank you.

So summing up, very strong quarter for us. Best ever sales in the quarter and also best EBIT and best margin in the third quarter. Strong organic sales supported also with currency and some smaller add-ons also coming from M&A in the quarter. Cash flow. A few hundred millions weaker than we kind of were expecting is the wrong word, but it should have been done due to the fact that we have a little bit higher inventory than kind of business is motivating. But that is the decision that we have made to make sure that we can manufacture. acquisitions kicking in Minnesota in the next few days being closed. And then also, I didn't comment on the silicon. Emgat silicon is a smaller one, but that's also we expect that to close within the quarter. It's going to take a few more weeks or months before that is fully closed. And we also signed an acquisition, kind of a strategic acquisition, adding for especially for pipe seals, for sewage pipes and that kind of application. So all in all, a very good quarter. Looking forward, we are guiding slightly lower than the third quarter. All honesty, if you look solely at the kind of Excel sheets and look at the water books, it doesn't really indicate this. We see really a firm weakness or a noticeable weakness only in the construction-related businesses. The rest of the business performing very nice. And we have also some businesses which is performing very nice, aerospace, medical and healthcare, oil and gas, which is, let's say, benefiting a lot and actually pushing up. But nevertheless, of course, we don't expect us to be outside of this kind of uncertainty we see in the macroeconomic environment. And we do our believing, we are preparing for a slight downturn. Although, once again, we are... very solid order books and we enter into quarter with the highest ever order book but nevertheless we have to be a little bit cautious going forward we need to to kind of start to be prepared to adjust at least because we do expect it to to turn down although once again we don't see it in the figure so this is a judgment from us on what we see going forward and not really what we see in the figures as we kind of exiting the third quarter. Because we do expect this political situation and the higher inflation and the kind of rising interest rates and all of that, it will impact the economy because this is kind of the purpose of this. And we do expect that to happen. But nevertheless, we are very happy with the performance. We are entering into an exciting time for Fort Trelleborg as we have Minnesota coming in. I mean, one of our biggest acquisitions ever which is then kind of in a multiple of ways reinforcing ceiling solutions and exciting times to get that integrated and making sure that we get let's say the benefits that we do expect from this acquisition on top of that of course also we're entering into the final phases of this kind of restructuring of the group we didn't comment that much on printing solutions we are Also, we're expecting printing solutions here to get all approvals here in the next few weeks, if I may say. So we are very firm that that's going to be closed here well before year-end. And then we have, let's say, the bigger one on wheel systems where everything is running according to plan, but we still... Need to get the approval here, full approval here, hopefully before year end, but it could also slide into the first month or months of 2023. But I mean, once again, no obstacles. It's simply a complicated process with a lot of approvals needed before we can fully close the deal. So once again, very solid quarter. We do expect also Q4 to be a very solid quarter for us. But nevertheless, we do expect kind of the order intake to continue to be a little bit shorter quarter on quarter. So that is kind of the guidance for Trelleborg. So with that, opening up for Q&A. We have some in the room here. I don't know if you're starting in the room and then move on to the conference call.

Okay, thanks. Erik Goldrang from SCB. I have three questions. First one on the pace of inflation. Could you say anything about the cost inflation progression year on year? I guess it's the easiest way to think about it as we exit the third quarter and into Q4. Is it still coming up? Is it flattening out? Or is it even coming down a bit here in the early parts of Q4 from a year on year perspective?

We see the inflation of raw materials flatting out. We do not really expect some overrun into kind of Q4 coming from earlier bought materials and running in what we bought before coming in, but we don't expect it to continue up. And we do see some kind of downward indications on some raw materials here when we start to buy in Q1 next year. So we do expect the raw material in general. Of course, there are some exceptions. But in totality, we do expect kind of a softening on the inflation, not in this running quarter, But we do expect the softening of that from raw materials coming in in the beginning of next year.

And if you bring in labor and energy and everything else.

Energy is the same. Energy is kind of also as you move and you learn a little bit. But there also is hedging is running out and you need to kind of be exposed to a little bit of higher energy costs. But as we say today, we don't see it getting any worsening in a way there either. There is some hedging contracts going out which we need to adjust for. which is kind of financially potentially impacting us, but not really buying new electricity. We don't see it really going up at the moment. Of course, it's a volatile environment. But we don't see the labor. I mean, we have been impacted by labor inflation quite a lot in America already. Asia as well. Although the inflationary pressure from labor in Asia is much lower than what we see from America to Europe. We do expect Europe to be more challenging going forward. And we do expect that to impact us. But at the same time, we are well prepared for it. And we are not kind of... I'm really concerned about it. I mean, we will continue to adjust and we also have, I mean, this inflationary pressure that we have in the running quarter, we already have price increases, let's say, implemented and accepted that will kind of benefit us. So for Q4, we don't see in totality that the mix of price increases and inflation to hit us, that's probably going to be a positive for Q4 for us. But then going into Q1 and Q2 next year, then of course labor is the uncertainty and we don't know exactly what's going to happen on that. But we are, once again, we are preparing for a higher inflationary pressure coming from labor. And once again, we are not really concerned about it, to be honest.

Okay. Second question, you were quite relaxed about China, saying that if anything you'd expect improvement here. Is that based on anything else than just recent commentary from state officials that they might be opening up a bit more? Is there anything company-specific in that?

We are not being that much exposed. I mean, the major close-downs have been in the Shanghai area, Nanjing, Hangzhou, and all of that, and a little bit in the south. I mean, we are not really exposed to that area. So we have been running... fairly okay i mean we are shandong province where we have let's say more in uh qingdao is a big area for us and also wuxi has been fine bushi sushi that's which is two hours outside of shanghai that has been okay so so we have not really been that much impacted of course some of our customers in china has been impacted and we do not expect it to be speculation a little bit but i do not expect that that kind of closed down to to widen into the smaller cities where we are more Shanghai is challenging, but honestly, and also a little bit in the south in Guangzhou and that area. But we are not kind of that much. We have been impacted a little bit in Shanghai. We have two factories in the Shanghai area which has been impacted, but not that much. So we don't expect it to get worse. But if anything, it will probably get better. But I mean, I'm not sure that it's going to get better, but we don't see any kind of major risk of a worsening from a Trelleborg perspective.

And then final question, you say the process to close the divestment of wheel systems is progressing according to plan, but I guess the fact that we have the printing blankets process, which has been quite delayed compared to original expectations, means that there's some reason to be concerned. So why is the printing blanket process, why is that the exception? I mean, what is it that's been a... progress slower in that one and why shouldn't that happen in the wheel systems?

Speculation is governments and they have their internal processes which we cannot really control. We have been frustrated on the printing because honestly we talk about two small countries which has not been kind of approving this. So that has been kind of delaying us for three, three, four months.

And also what is good, those country that is delaying us with printing blankets, we don't need to file for wheel systems because we had a higher market.

I mean, for for printing solutions, we have a fairly high market share in some smaller countries and that has been kind of then addressed there and that has been through a process in that one we don't have the same kind of exposure in in in wheel systems that is more the bigger filings if you say total eu total americas and we don't really see these small countries uh having an impact on the the wheel systems activities so in that respect it's an easier process for wheel systems it's more that the data needed for the wheel systems is kind of bigger because it's a bigger number of dollars and a bigger number of tires and a little bit more segments. We need to have lots of the filing is more complicated, but it's not for as many jurisdictions as we had to do for the printing. And that is probably the explanation. But of course, there is some uncertainty in it. We don't know, but we don't see any obstacles. We don't see any kind of problems. There's always some questions coming back. But I mean, it's nothing strange. And the original plan was to close it by year end. We didn't expect it to be quicker than that. So it's kind of running according to the plan with our legal guys who has been through this before. They gave this guidance and we are still keeping that guidance. We don't see any... It could. I mean, the Christmas is... As I say, some governments, they go on holiday Christmas. We always kind of try to squeeze it in before Christmas. But I mean, it could be that I don't want to work through Christmas because it's also official filing date in some jurisdictions that they need to respond within 30 days. And whether the 30 days is running through Christmas or running before Christmas, that is a challenge. So that is why we see now that it could potentially be pushed into January, February next year in order for them not to conclude it just before Christmas. So that is the way we look at it.

Thank you. Olof Lars Ammar, Danske Bank. Three questions from my side. Firstly, if you could elaborate a bit more on the outlook. 15% organic growth in Q3. It seems like the order book is still very strong. In terms of sales for Q4, should one expect, let's say, 5% down from the 15% level, or could you give some indication?

We expect a softening, but I think we want to keep it like that, Olof. It's uncertainty. Once again, if you looked at the pure order book and orders for deliveries in Q4... It should, in a way, continue on the same pace. But we do expect some. Although, I mean, we shouldn't say we have not any noticeable delays. We have no cancellations in order book. But of course, we are uncertain. We see the increasing kind of uncertainty in the market. But once again, if we solely looked at the order book and what is due for delivery in Q4, it should be on a similar level. But we do not expect that to happen. We do expect the softening. We do expect some customers to be careful by year-end. We do expect an increasing focus on cash flow. We are not the only ones with a few hundred millions lower on cash flow. We do expect an increased focus on cash flow in a lot of industrial companies. We do expect some of these orders to be pushed into the next quarter. it's a judgment we cannot really we have to trust our experience we have to trust what we have seen before but once again if we looked solely at the normal environment then sales I mean it's I understand you want the guidance but I mean we need to we need to accept that it's uncertainty people are getting more cautious and we do expect an increased cash flow focus by year end we do expect some orders to be pushed into next quarter but it's not yet in the books

And the second question, I think you did an acquisition in 2019 focusing on products for LNG terminals, if I remember correctly. And you didn't touch upon, you talked about oil and gas, which was very strong. Sometimes you're lucky.

I mean, I must say that this acquisition, of course, turned out tremendously good. And that is... I mean, for those of you who don't know, that is kind of focused on special hoses for transfer of liquid natural gas. And, of course, these new... Import terminals coming up, they need a lot of this. So we are fully booked in that business, and we're now looking how to expand capacity. I mean, delivery times is too long, and it's more a matter of making sure that you get good pricing, actually, than you are customers listening. But I mean, it's more to make sure that you get good pricing instead of really getting orders, because order is on demand. strong, strong push on that one.

How fast can you ramp up sales? I think it was 200, 300 million when you bought it.

Yeah, and I mean, we expect it to grow significantly, but I don't really want to, I mean, it's not going to be billions, for sure not, but I mean, we talk about a few hundred millions extra on that one with a good margin. but of course we say also the lead time on that is is not next month so so that that's when we talk one two year in the front there is a few projects which is kind of very speedy but the bulk of that is going to happen in the next year or so it's not that they're gonna let's say turn into sales here in the next quarter it's actually that we are at the moment getting orders and we are yeah making sure that we get good orders

And last question regarding balance sheet buybacks, acquisition. You're going to send some money to US and you will receive some money for wheel systems. How are you thinking about M&A buybacks going forward?

I mean, we would like to continue to grow Trello boards. Our thinking here is, of course, to continue to do M&As. We have also said that these share buybacks will be a multi-year program. But from a technical point of view, we will need an approval by DATM next year to be able to continue after April 2023. But there is an ambition to continue the share buyback. But as you said also, I mean, if you take all... into consideration, the printing proceeds in, the wheels proceeds in, and then you have the Minnesota money out, then we will be close to debt-free when you pull that all together.

So it's exciting times in that. We still have, let's say, plenty of acquisitions on our, let's say, target list. And I mean, this environment now, which is still a bit... Expected to be a tougher environment that is, of course, opening up for interesting opportunities. So we have to wait and see here. It's still some areas, as probably aware, that the cash is drying up in some areas. It is the growth-oriented companies, which is kind of not delivering good cash flow. They are getting more. challenging to get funding and we do expect also general carefulness so interesting opportunities will emerge and then it's more a matter of whether we are accepting the valuations or not but we feel that we're in a very good position here as we kind of conclude this as Fredrik said we got up with no depth here beginning of next year And then, of course, we will try to use that, continue with the share buybacks and continue to scout for acquisitions. And we do not see ourselves, let's say, needing a debt-free balance sheet. So, I mean, if we are not successful, then we need to find other ways of making sure our shareholders get benefits from this extra money that is going to be on the balance sheet or extra capacity. in the balance sheet. So we do expect exciting times in that dimension as well. Any questions from the call?

Thank you very much. We will now begin the question and answer session. To ask a question, you may press star and one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you wish to withdraw yourself from the question, please press star and then two. At this time, we will pause momentarily to assemble our rosters. The first question comes from the line of Klaas Bergelund from Citi. Please go ahead.

Thank you. So hi, Peter and Frederick, Klaas at Citi. Quite an echo, but a question on the margins. On the integration cost and ceiling, what was the impact here? It looks like a low number, but I just wanted to confirm. And then in industrial solutions and the solid margin here, it seems like price increases come through here in a bigger way in September, but was there any impact from mix, like we've seen before from certain project sales with a high margin moving through the P&L? I'll start here.

Every scientist is basically all over. There's no mix kind of explanations on this. This is more solid development all over us. As we know, we have a little bit mix of businesses, but we are satisfied with the development of everything. One which is kind of improving more in the course is probably automotive related businesses, which is picking up in volume. But that is kind of a small part of industrial solutions. But that is kind of the only area where we see a noticeable improvement. Otherwise, it's kind of an improvement all over. It's coming from pricing, coming from the higher volumes going through the factories, and that is kind of a very solid, no-trick development. It's simply that it's good managed and well executed. So I cannot really say pinpoint any... specifics in that on the integration costs on this probably integration cost is a smaller explanation than the adding of resources I mean we have been building especially medical and healthcare now as we're also preparing for the integration of Minnesota we have been building let's say an organization which is able to cope with a substantially bigger medical and healthcare exposure than we had before so that is kind of majority of this what we comment on added resources as for medical and healthcare and that is kind of a bigger explanation but although i mean i also say the margin in ceiling solutions a year ago was actually record high for a quarter tree so even if adding back this let's say integration cost and extra resources we will get probably get close to the margin a year ago, but we will not beat the margin a year ago. So we're not talking a little bit about any kind of major differences in this. I don't know whether that is enough, Claes.

No, it's all good. Just to follow up then on price costs, you're hiking prices again here into the fall. And I guess this is linked to upcoming wage inflation, which is good. But I just want to zoom in on the energy side. We've seen some sharp downward moves here on prices last couple of days. What is the lagged effect from when any inflation impacts the P&L? You talk about hedges here. I just want to understand that better. Maybe energy could start to be positive against the higher pricing next couple of quarters. Thanks.

I mean, we don't have huge hedges, so I will say you will get a... If the prices will go down, I will say will go down a little bit more long term. Of course, you will see that quite quickly. I mean, what could we talk about? 25% that is hedged, not more.

Yeah. And I mean, we are not generally working with hedging on this. I think the comments are more related that we have some competitors which is hedging and maybe not... as active as we are on the price increases because their actions will be delayed since they kind of forget about the hedge, in a way, if I may say. So that is more the challenge to... do that so so and also once again energy is a small cost for us in totality we are not concerned about that this i mean it's it's in wheel systems honestly it's in wheel systems where we have energy exposure but but in the industrial solutions and in ceiling solutions our energy exposure is very limited and we don't really see that as a major major thing for us to be honest i mean we were talking about the annual swings of 10 million euros or whatever so it's not really anything which is neglectable in a way for us excluding wheel systems is kind of neglectable in comparison to the raw materials so that is not really okay I understand it's high on the agenda for the investors it's high on the agenda for some of you analysts but for us operationally it's not honestly not a big thing yeah

No, I know it's lower. It's mainly TWS. My very quick final one is on the construction exposure in T's. Remind me, how big is that today in the quarter? And also, what kind of volume declines did we see sort of quarter end here? Is it 10%, 15% down when you look at orders, or is it more? Yes, so we get a feeling for it.

Our construction exposure is mixed. I mean, we have more infrastructure, big construction, and that is still growing. Our comment on the construction exposure is mainly linked to the windows and house construction, all of that, particularly in Europe, where we do see a downside. But I mean, you talk about, I don't know, less than 10% of exposure, I guess, in industrial solutions, and that is down by a few tens of percent. I mean, that is what we're talking. So it's noticeably down. Yeah. But we also know that this is also a little bit going from very high inventories in that areas, wooden windows and stuff like that. We know that they've been keeping very high inventory. So we still want to wait out a little bit to see what is really the underlying demand in that one. But in the quarter, there was, let's say, a noticeable shortening of orders for this kind of application. You talk about facades, you talk about wooden windows, you talk about some PVC windows, some aluminum windows, and some modular housing. I mean, this is the areas where we see a downturn, but we don't see a downturn generally in construction because we still see an uptick in the kind of infrastructure construction part of it. So... That was more of us to try to find an area where we see a change and we see a negative change. But once again, for the totality, it's not really a major impact. It could impact, let's say, the organic growth in total for industrial solutions, but a few percentage points. That is what we talk about.

Yeah, very clear. A good caller. Thank you.

Thank you. The next question comes from Hamtas Engellau from Handens Banking. Please go ahead.

Thank you very much. Two questions from me. Would it be possible for you guys to maybe make some comments on pricing? How much was the price of the 15% organic growth? And the next question is a very nitty-gritty, crunching question, but still I'll ask it. And that is looking at third quarter 2022 and adjusting for FX and also the price increases that you have been implemented. Compare that with third quarter 2019. How much are volumes up? I'm just trying to get the feeling for how you guys are running in the industrial cycle to maybe grasp what kind of potential drop we could be facing by looking at next year development in general industries. Those are my two questions. Thanks.

It varies, of course, on the price and volume. But if you say ceiling and industrial solutions together, how far forward?

Yeah, between one third and a half, I think.

Depending on the business and then probably a bit higher on wheel season. Wheel season is probably two thirds pricing and one third volume. I mean, it's slightly higher on the other one, but I mean, okay. Yeah, between 40 and 50%, if you say, is probably volume and then the remaining is pricing on the organic growth. And then the second one was a complicated question.

I'll ask it in a much easier way. On fully comparable levels, when would you say volumes for continuing operations are compared to 2019 third quarter?

Then it's up this by 5-10%. I'm looking at Christopher as well, who has been... No, no, we have to get back on that one because we don't have it here in front of us. I don't want to guess, but I guess it's, I mean, my wild guess is between 5 and 10, but I have to get back and confirm that one.

Fair and square. Thank you, Peter.

Thank you. The next question comes from Carl Bockwest from ABG. Please go ahead.

Thank you. My question relates to more of the acquisition processes. Let's start with Minnesota. If I understood you correctly, we should hope for this to be closed and to contribute at least one month in Q4. But just on the financials for Minnesota, is it possible for you to disclose any more information about the company now when you've looked through it more in closer detail?

We will do that. I mean, we still don't own it. So we have not kind of getting all full insights. But of course, we're going to as soon as possible, we're going to give you some more input on the above PPA effects and underlying profitability, underlying growth and all of that. So that will be provided. Yeah. Before year end, let's put it like that. Before year end, you will get, let's say, a comprehensive update on that. And we will explain a lot more about that one. But we still are competitors. We need to know that. I mean, we have still not kind of... been allowed to look at exactly everything of course we have our ideas and we have our views but once again you probably have to allow us a few weeks or a month or so before we kind of can provide the full insight into that but it will be done before year end so you could you who want to let's say give a good guidance for 23 you will get full information on that well before year end.

understood and the second one was just on the progress on on wheel systems as far as you can share that information what is left to be handled in the process from either your side or yokohama side before this this can be closed

When you file this, generally, it's a little bit different, different jurisdictions, but the bigger jurisdictions, you need to hand in a preliminary filing, and then they are asking questions on that one so they fully understand all the facts in this. I might not fully understand the way we split the market. I might not fully understand the way we explain market share, is the volume or pricing or that. There is always some complementary questions on that. So the preliminary filing... is in, and we are waiting for feedback. There's still some questions on these ones and clarifications on this before they kind of go ahead and... and do the final review in a way, but we do expect when the kind of this application is fully accepted, then we don't, we expect a month or something to kind of for them to conclude the process and we are still once again, the preliminary filing is done and we don't know if there's going to be more, we do expect some more questions, but we don't know really the volume of these questions or understanding. shouldn't either blame the guys looking at it but it's also a little bit that you get into experienced guys or non-experienced guys and that is kind of where you cannot control it and that is our legal assistance our legal assistance and Yokohama legal assistance, we need to make sure that we put it in the right format and right explanations in order to these guys who is kind of doing this formal review is actually, I mean, no complaints, but of course, this is kind of a part of the governments and authorities, which is there is some turnover among people and you need to be a little bit lucky ending up with the right guy administrating your request. I mean, this is down to these kind of details. But we don't expect, there is no questions that we cannot reply on. There is no questions really outstanding. There is nothing strange. It's simply that they want to get it into their format and they need to accept it, that this is the correct format. And that is the process which is ongoing at the moment. And that is a process we don't know how many times the ball will be, let's say, sent across the table. So that is kind of the process that we're in. So we are not kind of delaying anything and we are not kind of expecting any problems, but it's more that you need to get these formal processes in place. And I mean, also some governments is understaffed, if I may say, in this dimension, and that is something we cannot really control.

Understood.

Frustrating in some areas, but that's the way it is.

Yeah. No, no, that's understandable. Just a quick follow-up is just for the process or for the time when wheel systems is still part of your operations, I guess that the earnings and cash flows will be attributable to you.

For sure, yes.

All right. Good. Thank you.

Thank you. As there are no more questions, this concludes our question and answer session. I would like to turn the conference back to the speakers for any closing remarks.

Thank you. And thanks again, all of you for interest in Trelleborg. I mean, we are delivering a very solid quarter and we're looking also favorably on the future. We believe Trelleborg is in a better shape than ever in a way. Exciting times ahead for us as we are concluding first printing solutions and then selling printing solution, adding Minnesota and then also selling, let's say, wheel systems, which is creating a lot of opportunity for us going forward. And we're entering into this period with a record high order book, although we note the dark clouds on the horizon. So we are somewhat careful on the way we look at it at the moment. We are preparing for a slight softening. But once again, if you look solely at our figures, I mean, they are showing continued growth. let's say performance on a similar levels but once again we are not neglecting the dark clouds and we are preparing for for a little bit uh challenging environment especially in europe very solid development in america and we do expect if anything a slight continuous light improvement in asia uh so europe is the concern and that is what we need to watch very carefully but nevertheless record high quarter for us in more loss at all aspects and i mean we're looking forward getting back to you and telling more about Minnesota, telling more about the printing, telling more about wheel systems. And then when this is behind us, we're hopefully going to show you also a decent or very good Q4. So that's the focus for us at the moment. And once again, thanks for listening in. Any follow-up questions, of course, I'm available. Fredrik is available and Kristoffer is also available if you need any further clarifications or have any other questions. information that you want to share or want to be, if you want to be informed about anything that we have not mentioned in the call. So thanks again and see you later.