Trelleborg AB (publ)

Welcome to Trelborg Q4 presentation 2023. For the first part of the conference call, the participants will be in listen-only mode. During the questions and answer session, participants are able to ask questions by dialing star 5 on their telephone keypad. Now I will hand the conference over to the speaker's CEO Peter Nilsson and CFO Frederick Nilsson. Please go ahead. Thank you.

Welcome to all of you to this call where we're going to present our year-end closing figures and then with a particular focus on the Q4 performance and as usual I'm going to kick off giving some overall intro and then also some comments on the business areas and then hand over to Fredrik to guide you through the more financial part of the report and then we're finishing off with some let's say headlines on the running quarter and then also finishing off of course with the Q&A session. So as usual also we're going to use the slide deck which has been on our web page for some time. We're going to use that slide deck to guide you through this presentation. So I'm going to refer to that one and starting with that On the first page, Trelleborg Interim Report for Q4, October-December 2022. And then turning to page two, Agenda, which I already introduced, starting with some highlights, talk about the business areas, Frederick, go through the financials, and then do a summary with some comments also on the outlook for the running quarter, and then finishing off with the Q&A. So quickly then moving to page number three. heading record year close with the strong quarter we're finishing off in a good way a very good quarter for us sales ending up at all-time high quarterly sales at a little bit north of eight billion swedish for continuing operations of course that is something also that aware that this is kind of excluding wind systems i'm going to comment a little bit about that specifically but looking at continuing operations we have a very strong increase of some 35 percent organic then is 15 currency still a big beneficiary adding 12 and then also m a which is then primarily driven to two months of minnesota rubber and plastic which we're also going to comment a little bit more specific about ebit growing with the same as the sales ending up at the a little bit north of 1.2 billion swedish which is then corresponding to a margin which is 50.3 which is kind of equal to 50.4 we had a year ago so same same margin in the quarter and already commented and this is the highest quarterly sales ever and also highest ebit for q4 we still have some items affecting comparability ending up in quarters 115 which is well within the guidance we have for this for the full year um also finishing off the year with a very strong cash flow i mean we are happy of course with overall performance but kind of particularly on on the cash flow with ending up very strong which is then in total then pushing us to have a less a better operating cash flow for the full year uh than last year so so very strong cash flow in the quarter and we also know it with i trust all of you know that we also in the quarter I've had Minnesota rubber and plastic in the figures for two months, consolidated from October 27th. I'm going to comment a little bit more about that also later on. There are also two minor acquisitions, consolidating quarter MG Silicon, which is then adding some aerospace capabilities for TSS and some other industrial applications, and then also for IST, which is focusing on the aftermarket for pipe repair, pipe seals. which is also consolidated, but not really impacting the figures that much. Turning on page four, commenting about organic sales, fairly equal organic growth all over our three regions. Europe growing by 13%, Asia and other markets by 14%, even though, of course, like everybody else, China has been some kind of subdued, even though we managed it fairly well. I must say, but overall Asia doing good. America stands slightly stronger than Europe and Asia. But overall, as I already started on, the average here, we talk about 15 organic, which is fairly equal all across the regions. Moving to page five, agenda slide, and moving quickly over to comments on the business areas. On page six, Then talking about industrial solutions, we have a heading, strong sales in EBIT growth, which is actually the same heading as we have on this slide, as we haven't seen in solutions. Fairly good development all over, organic sales plus 18%, very strong. In the quarter, we have particularly strong sales in Europe and North America, and then we have solid development in Asia. So overall, good development in all geographic regions. Continue to see this, which you already commented in the last quarter, slow down in european residential construction which is hitting industrial solution and also a little bit slow down also in order intake into the infrastructure part of it but for there we are not really reading in the lowest overall demand it's more that we have very strong order book in that area and that is always a bit bumpy but nevertheless it's a bit slower order intake also in that area in the quarter ebit and margin um well managed here also as everybody else i guess we are hit here but also inflation in a multiple of aspects but that didn't manage in a good way and we managed them to grow ebit in line with with sales or slightly slightly better which is then putting the margin to 0.2 percentage points higher than last year so well managed in a quarter and especially then managing these higher costs which is then fully offset by pricing and efficiency Acquisition of ICT being added here, very short in the month, which is short in the quarter, but that is something we're going to see more benefits from going forward. Then moving to page seven, and talk about steel and solutions, same heading as on industrial solutions, strong sales and EBIT growth. Organic sales up by 12%, and of course our M&A adding, especially Minnesota, rubber and plastics then adding sales in the quarter. Also fairly even from a geographical point of view, good growth in all major geographies. And the major here is basically saying that China was a little bit subdued, but that was compensated by good growth in other parts of Asia. We also note that especially sales to healthcare and medical and aerospace increased significantly, which is kind of a strong growth in sales and also strong water intake in these two segments. We also note a little bit slight change in the quarter related to automotive, which is also, we say, a development favorably. We also see a pickup from some well-known issues earlier in the year. Solid demand in industrial in the quarter, even though we note also with this much smaller dimension than if we look at the residential construction, but we see a little bit slower on industrial, which we read in Maybe not that much down in the underlying demand, but we do believe there is some inventory reductions hitting us, and it's also going to hit us a little bit going into Q1. So the underlying demand is still seen as fairly solid in most segments, but once again, we see a little bit slowdown in Q2. in the kind of demand for this running quarter and potentially also for Q4 and also for Q1 which we once again read in a little bit to be some inventory adjustments. EBIT growing slightly lower than the sales but nevertheless good and we also note that the margin which is already in common as well is somewhat impacted by the integration of MRP which is coming in then with with a high PPA and also with, let's say, not a lower margin than the overall ceiling solution. So that is kind of pushing down the margin. So if you look kind of outside of MRP, the underlying margin of solution was basically spot on compared to two years ago. We also know with satisfaction, even though MRP is the biggest one but also MG Silicon is a nice bolt-on acquisition for us which is kind of strengthening in some aerospace niches and also creating opportunities to leverage the technology we have in them or adding by acquiring MG Silicon is also something that we're going to benefit from in other parts of the world and Europe as MG Silicon has been primarily focused on Europe before. So we're all a very solid Jone Peter Reistadler, quarter for ceiling solutions, but of course heavy influenced by by the integration of Minnesota rubber and plastic and with that topic move to page eight a few comments on on Minnesota rubber and plastic, as I already commented. Jone Peter Reistadler, If you move to page eight coming here and Minnesota rubber plastic, as I already said consolidated from 27th of October. And we also note, although minor, but we have here in the first few months, we have some extra acquisition integration costs in the quarter, which we estimate in the range of a million dollars, roughly 10 million Swedish, which is kind of extraordinary costs in the quarter hitting the underlying performance. We also more or less completed now the PPA allocation, and we can now give a figure for that. So it's roughly, we estimate it to be 225 million Swedish for full year 23, which means the running rate for these two months that they had in Q4 is 37. And then also, which I already commented, the ceiling solutions kind of excluding MRP was spot on to Q4 a year ago. We also see here already now in the early integration, we say we have committed substantial synergies by integrating rubber and plastic, and this is being confirmed here in the first few months of full ownership. Of course, it's going to take some time. get it fully into the books but we are definitely we are not changing our view on this and we still believe firmly in that this is going to be delivered in the next two to three years. So we're very happy for owning Minnesota Rubber and Plastic and we're eagerly looking forward to integrate this into Sealing Solutions in a good way. uh moving over to page nine and talking then about the tradable wheel systems and as i already mentioned in the beginning of course that is reported as ssl for sale but we still own it and if you then move to page 10 to take the performance of wheel systems uh very strong development in the quarter on the back of good demand and good let's say price capitalization organic sales up by 10% and especially we are kind of benefiting in compared to the market that we are more exposure to the original equipment which is then growing in basically all tire categories and most geographical markets also here most means that China is a little bit impacted by the China situation but for the rest of the world if you're growing we note also with satisfaction that North America is developing very nicely for us and that is softening, that's a noticeable softening is in the aftermarket, especially for agricultural tires, but also material handling tires. And that is something also, which is in a way always happening when people are starting to believe in lower raw material pricing and all of that, and they start to speculate that they are not buying kind of in line with underlying demand since they are focusing on lowering inventory and then try to buy the tires a bit later at a lower prices. Nevertheless, well managed in total and we are also with satisfaction here growing the margin from 10 percent a year ago up to 12.6. So good performance in the interleaved wheel systems in Q4. Turning to page 11 and some brief comments then on sustainability. This is kind of something that we now put on report and we are working on and we know Good development in those areas. This is, of course, new KPIs. And I trust you're aware that, I mean, we're always going to live a bit higher in Q4 and Q3 due to the seasonality. Since we are mainly exposed to the northern hemisphere, then, of course, this colder climate is adding some CO2 in the quarter. But we look on a year-on-year performance. It has been a very good development for Trelleborg in the air. And overall, our CO2 is down by some 10%. uh year on year for the full year so turning into page 12 which is one of the biggest drivers for for this and that is the share of kind of renewable and fossil free electricity in relation to total electricity which you see here that also q4 i've had a very strong strong growth and this is something we continue to focus on and something we continue to believe or or fully trust that we're going to continue to see improvements in this area as we move on. So good development also in this main sustainability related KPIs. Turning to page 13 agenda slide again and financials and then handing over to Fredrik to comment on this. Thank you Peter.

Let's then move to page 14 and looking at the sales development. Organic sales increased by 15% in a quarter with organic growth in both business areas. looking at the report net sales increased by 35 percent we have eight percent growth from acquisition during the quarter while currency added 12 percent and then if we look at year to date sales were up 27 percent with an organic growth at 14 percent if we then move to page 15 looking at the historical organic growth we can see that the fourth quarter was another good quarter with organic growth And as you can also see in the graph, we have now been on or above our sales growth targets for the last eight quarters. Looking at page 16, showing the quarterly sales around 12 months for continuing operations. Sales in the quarter amounted to 8.1 billion, which was an all-time high for continuing operations. Moving on to page 17, We had a record high EBIT and EBIT margin for fourth quarter. EBIT in the quarter increased by 34% to 1.2 billion with a strong profit growth in both industrial solution and ceiling solutions. In the result, there was also positive FX effect from translation of foreign subsidiaries of 75 million compared to the corresponding quarter last year. EBIT margin for continuing operations, excluding items affecting comparability, reached 15.3 compared to 15.4 for the corresponding quarter last year. In both industrial solutions and ceiling solutions, there was a good sales growth supported by price adjustment to offset the higher costs. If we then move on to page 18 and looking at the EBIT and EBIT margin on rolling 12 months, we can see that EBIT continued to increase while the margin was flat in the quarter. If you look at the full year EBIT of 5 billion 66 million with a margin of 16.8%, which was a very good improvement compared to prior year. Going to page 19, profit and loss statement, looking at some more details in the income statement. Some items affecting comparability in the quarter, $115 million, and that was entirely related to risk-assuring costs. Continue down in the P&L, the financial net increased from $34 to $74 million in the quarter. This was mainly related to higher interest costs linked to the acquisition of Minnesota rubber and plastic. The acquisition is then financed with a short-term loan that, of course, will be repaid as soon as we receive the proceeds from the wheel divestments. We have also continued to buy back shares in the quarter. And finally, we are seeing increased interest rates. The tax rate in the quarter amounted to 27%. I would just like to reemphasize that the underlying tax rate and the guidance we have for continuing operations still is 26% for the full year. And then if you look for the net profit for this continuing operation, we see a good, as Peter mentioned, good improvement for wheel systems, but there is also support from this where IFRS 5, where you stop the depreciation duties as it held for sale, which was impacted by 167 million in the quarter. Moving on to page 20, earnings per share. For continued operation excluding items affecting comparability, earnings per share was up 49% from 2.28 to 3.40 in the quarter. And if we look at the total group, earnings per share increased by 68%. If we are moving on to page 21, looking at the cash flow, we have a strong cash flow in the quarter, reaching 1,678,000,000. Cash flow was positively impacted by the higher earnings generations, and then also very efficient working capital management in the quarter. And then finally, it was slightly offset by a little bit higher investment, which was in line with expectation. Moving on to page 22, the cash flow conversion. Over the last 12 months, we have a cash conversion of 74%, and that just reflects the higher business activities, which has required some additional working capital during 2022. Moving on to page 23, gearing and leverage development. You can see an increase here up to 56%, which is entirely related to the acquisition of Minnesota rubber and plastics. Net debt was of course also impacted with our share buyback. which amounted to 384 million during the fourth quarter. And net debt in relation to EBITDA reached 2.4 by the end of the year. Moving on to page 24, returning capital unemployed. You can see it's reached 15.9% in the fourth quarter. And the capital employed increased due to acquisitions, a little bit higher working capital due to the higher sales. FX rates also have an impact, but that was well offset by increased profitability up to the fourth quarter. And then I will finish off on page 25 with some financial guidelines for 2023, and this is continuing operations. CapEx of around 1.5 billion, restructuring costs estimated to be around 250 million, amortization of intangible assets 500 million, and then underlying tax rate of 26%. By that, I would like to hand back the microphone to Peter.