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.