Trelleborg AB (publ)

Welcome to the Trelleborg Q1 2023 report presentation. For the first part of the presentation, participants will be in listen-only mode. During the questions and answers session, participants are able to ask questions by dialing star 5 on their telephone keypad. Now I will hand the conference over to CEO Peter Nilsson and CFO Frederick Nilsson. Please go ahead.

Thank you. Welcome to all of you to this presentation of the Trelleborg Interim Report for the first quarter of 2023. Peter Nilsson speaking, President and CEO of Trelleborg and also joining me on the call here is Fredrik Nilsson, CFO and also on the call in case we need his skills, Kristoffer Sjögren, Head of Investor Relations at Trelleborg. and so turning them to page two the agenda for the call as usual for us we start off with some highlights and where i do some comments on that and also commenting on our business areas and then i hand over to frederick to guide us through the financials and then we sum up the call with some summary and some comments on the outlook for the running quarter and then finishing off the call with the q a session Moving to page three, starting with overall head, let's say, comments for the quarter. Heading on the call and also quarterly report, a good start to the year. We feel that the start of 2023 has started in a good way for us. Sales is up by 23%, roughly equally split on organic sales, currency, and M&A. um ebit uh growing slightly less 15 percent up to um a little bit north of 1.4 billion corresponding to a margin of 16.2 and this then due for for the continuing operations the highest quarterly sales and the highest ebit to date we have some some items affecting comparability in link to ongoing restructuring of some 50 million swedish kronors strong cash flow in the quarter to be a first quarter for us. I mean, we always have a, or usually we have a very good ending of the year and actually a capital build up, let's say working capital build up in the first quarter. So it's naturally that the cash flow for the first quarter is slightly lower. But I mean, this is strong cash flow for us for a first quarter in comparison to normally. also in the quarter of course very important step for us we we did get the final merger clearances for disposal of wheel systems then we were waiting long for this but in the quarter we got this from the uk authorities and also from eu so we are getting ready to to close this deal we also know a minor acquisition for us in u.s focus in aerospace although small but a very Nice add-on to us for aerospace components and coming into Sealing Solutions, which is a company based out in Washington State, very close to the headquarters of Boeing, which is then creating opportunities for us to sell more based on the long-term connections into Boeing in Seattle for us. and headlights and then turning over to page four a little bit comments on the organic sales i mean still solid organic growth in in europe although lower than last year also solid organic sales in america but also there lower than last year then we know that in asia we have been hurt in the quarter by low sales especially in in china for well-known reasons um all the comment on that we see a strong ending of the quarter and we do expect that to pick up substantially throughout the year now as China is up and running again. Overall, already commented on that in the beginning, overall organic sales, 7%, majority being price, but also smallish volume in the quarter, slightly as a downtick compared to last year, but still a solid growth in the quarter. Turning to the agenda slide again, and moving on to the business areas. Page six, to comment on industrial solutions. Good development continues. We had a very solid development in industrial solutions for quite some time, and it continues in this quarter. No step changes, but a solid uptick again. Organic sales strong at 8%, especially strong then on LNG and marine solutions to niches, which is Well, we have good global market positions, and we are, let's say, growing with a very strong underlying market. We also note in some areas, aerospace especially continuing very strong, which also later on we'll comment on seeding solutions. Automotive also kind of well-known for everybody. It's also picking up in the quarter, where we note especially in Europe doing good. And we also have in the quarter good railway sales. This is a little bit bumpy. sales as is project related but we note in the quarter that we have a strong ordering taken as well as good sales in in this railway segment slightly weaker also well known commenting before european residential construction where we are hurt by this down turn in this industry and we also want to highlight certain industrial segments and i mean just to comment further on that The industrial segments which is being hurt here is mainly the industrial segments where we do not sell directly, where we sell through distributors or dealers, where we note that this is down. And this is probably, or we know, is a kind of a W, but slightly weakened outlook for those guys, which means that they're also cutting down inventory, which is then hitting us in kind of a double way for these segments. A minor part of industrial solutions, but nevertheless, noticeable in the quarter this development overall although it was a good development and as i said the sales is up in reported currencies which is grown as by 16 and we see profit is up by 20 which means then a slight uptick also in margin running at 30 per day which we are satisfied with and we also know that in the quarter inflation is well upset by pricing and efficiency and we don't see anything that we are not behind in any way to compensate ourselves for this slide in costing. And we know that it's going to continue throughout the year. We still see, valid for all of Trelleborg, we still see some inflation kicking in for certain raw materials. And we're also, of course, watching carefully what is happening with the salary inflation. But overall, we continue to feel confident that we're going to be able to continuously uh act against this when it's hitting us so that is for industrial solutions and then moving to page six and ceiling solutions um heading higher sales and ebit today although margin is easily down but we still for known reasons and i'm going back and comment on that one but nevertheless we know that sales is the highest so far and also ebit is the highest so far for ceiling solutions organic sales up by five mna by 17 which is then of course Majority of that linked to Minnesota rubber and plastics. We note the satisfactory sales growth in Europe and America. Some already commented on Asia is weaker on specifically on lower China sales, but also Asia. There is a minor part there also linked to semiconductors, which is also noticeable down in the quarter. And this is just to comment on that in China sales as well as semiconductor sales. So semiconductor seals that we sell into the semiconductor industry is influencing also the margin because it's creating a negative mix so we have a few tens of the soin tens of percentage points that is kind of hitting us due to this kind of change mix in in lower sales in in china and lower sales linked to the semiconductors and we note also that the sales to aerospace and healthcare and medical is notably up substantially stronger in organic sales compared to the overall average And we also note that automotive developed favorably, which is also kind of here in this area, we note also satisfactory sales also in North America, as well as in Europe. We have some industrial demand where we are a little bit uncertain. I mean, it's not any kind of strange things and there's no drama in this, but we do know that there's a little bit flattish in a few industrial segments, especially linked to construction equipment. but also in some areas, which is still a strong order book for us. But nevertheless, we do know that there is some kind of carefulness kicking in in a few areas. Also, margin is impacted. Well known as well that we had the MRP acquisition kicking in, which is a major PPA effect as well. So that's, of course, explaining kind of half the EBIT change compared to last year. And then we also note that last year was a very good quarter with 24%. So we do note that there is a slight kind of downtick also in ceiling solutions overall, which is then soft China sales, but also commenting on this kind of mix effects, which is also hitting us somewhat. But overall satisfactory developments in the quarter. Turning to page eight, let's say, hopefully or likely, very likely the last comment for us on on wheel systems which is reported as an asset to say it is a solid quarter for wheel systems organic sales flattish but the favorable sales in especially north america and also globally on the original equipment agricultural tire business while we know that europe is impacted let's say sizably by a lower off the market sales And EBIT is although up, although margin is slightly down, but we are keeping this in a good way, although we have kind of a negative gross margin mix, seeing to always say it's growing and off the market say it's going down, but nevertheless well managed by our colleagues in wheel systems in the quarter. Then turning to page 10 to comment a little bit further on the divestments. I mean, as you know, we have two pending divestments, Trelleborg Wheel Systems, but also this Trelleborg Printing Solutions, which is a business unit that we have been kind of signed an agreement to sell to Continental. To comment on this, we are, as I already commented, the final merger clearances for wheel systems. happening in the quarter and there's nothing now left really to solve. There's more to some formalities that need to get in place and we do expect closing of the wheel systems to happen in Q2. And the same actually applies also to printing solutions where we also have the final outstanding points agreed and we're also in the fine-tuning of these acquisitions. We do expect that also to close here in the next month or two. And also, in commenting earlier, I mean, these two divestments will create a cash inflow for us that will make a solid into a net cash position for the group here in quarter two. Also, just to confirm earlier comments, capital gain from the divestment will amount to approximately six billion. And that will also be expected to be reported as a non-recurring income in quarter two. And we will get back, of course, when these two deals finally are closed, we will get back with more comments on that and we will send out the press release for each of them to give you detailed figures for this. Okay, turning to page 11. some comments on sustainability. We're focusing basically on two areas, carbon emissions, and then a little bit more electricity supply and those work cases. I mean, you know that we are kind of in continuous operation, kind of flattish compared to a year ago in absolute terms. But that's, of course, also linked that we have acquired companies here. So if you look at the tons intensity, then we have actually improved 28 percent year on year quarter and quarter here of course you need to compare quarter and quarter since the temperatures are different and you cannot really compare quarter on quarter so we have to do an uh it's an annual comparison so this is kind of well managed and they continue to to run in a good way down 28 percent year on year turning to page 12 and the next page we talk about share of renewable and fossil free electricity and lost work cases on this one you note that there's 44 percent the Only, if I may say, only increasing the share of renewable and fossil fuel electricity by two percentage points. But also here, we need to note that Minnesota rubber coming in with virtually no renewable electricity in their portfolio. And that is, of course, something that we, let's say, expect to improve considerably going forward. We do expect that also to go up. And you know that we have a long-term target here of getting above 80 percent and we feel very comfortable that we're going to get there in the kind of foreseeable future put it like that so we are not that far away from from that goal even though it looks like that at the moment a lot of work cases with another important task for us to keep our employees safe and you see also we are let's say all-time quarterly low here on 27 is still not good enough and we're going to improve that as well but nevertheless we also do see a positive movement in this area. So we are quite satisfied overall with the development of this sustainability. Of course there is several other KPIs also in this area but we have decided to highlight this in a quarterly report and then we're going to get back and look into this and of course we're going to continue to focus on this area and also improve both in terms of performance as well as in terms of reporting. Turning to page 13, again and again, financials, and then quickly turning over to Fredrik, starting at page 14. Please, Fredrik.

Thank you, Peter. Strong sales increase in the first quarter of 23%, 7% organic growth in the quarter, with organic growth of both industrial solutions and ceiling solutions in the quarter. We have acquisition adding 9% to the sales, And then currency added another 7%. And then it totaled up to the 23% improvement year over year. Moving to page 15, looking at the strong sales trend. That continues. I mean, we had a strong first quarter again. And we have now nine quarter in a row where we have been on or above our sales growth target. Moving on to page 16. Showing the quarterly sales on a rolling 12 months for continuing operations. We have 8,711,000,000 sales was the highest to date for a quarter. And then if you look at the rolling 12 months, we reached 31.7 billion stick. Moving to page 17. EBIT, it was the highest to date with 1,411,000,000. a 15% increase with profit growth in both industrial solution and ceiling solution. I would also like to highlight that in the result, there was a translation of foreign subsidiaries that has a positive impact in the result of 67 million compared to the corresponding quarter last year. EBIT margin reached 16.2, which was impacted with acquisition with lower margin. And we also have the PPA amortization that Peter mentioned earlier. Moving on to page 18, looking at EBIT and EBIT modern role in 12 months. The positive trend with increased EBIT continued while the margin declined in a quarter impacted by the recent acquisitions. If we look at role in 12 months, EBIT amounted to a little bit more than 5.2 billion with a margin of 16.5. Moving on to page 19, looking at some further details in the income statement. We have items affecting comparability of minus 49 million in the quarter, which was entirely related to restructuring costs. Financial net increased from 45 to 165 million in the quarter, and it was impacted by higher interest expenses linked to acquisition of Minnesota rubber and plastic. We have in general higher interest rates, and we have also continued to buy back own shares in the quarter. Tax rate for the quarter amounted to 25%. The underlying tax rate still remains at 26% for the full year. So the earlier guidance is still the same, despite we have one percentage point lower in the first quarter. Net profit for these continued operations improved due to the continued profit growth for wheels systems. Moving on, page 20. Earnings per share for continuing operations up 13%. And if we look at the total group, earnings per share increased by 11% in the quarter. Moving on, page 21. We have a strong cash flow improvement compared to first quarter last year. Good improvement from EBITDA of 308 million in the quarter. And then you can see slightly higher capex compared to prior year. Moving on, page 22, cash flow conversion. We have a cash flow conversion ratio of 75% during the first quarter of 23 versus 76 last year. Moving on to page 23. Looking at the debt equity ratio, we have 56% end of the quarter, and the increase was entirely related to the Minnesota acquisition that we closed during the fourth quarter last year. Net debt was also impacted by the ongoing share buyback program, and we have bought back shares for 654 million during the first quarter. So net debt in relation to EBITDA ended at 2.4, which is unchanged versus year end. Moving on to page 24, looking at return of capital employed at 14.9 end of the quarter versus 15.7 end of first quarter 2022. The capital employed has been impacted by higher working capital as a consequence of the higher sales and also the acquisitions that we have made during last year. And also there is an FX impact linked to the return of capital employed. I will finish off this section by some guidelines for 2023. They are unchanged compared to what we presented a quarter ago. So CAPEX, we estimate to be around 1.5 billion for the year. Restruction costs around 250 million. Amortization intangibles, we expect to amount to around 500 million for the full year and underlying tax rate to 26%. By that, I would like to hand back the microphone to Peter.