Trelleborg AB (publ)

Hello everybody and welcome to this half-year report of Trelleborg and more focused on our quarter two performance of 2023. As usual in these calls Peter Nilsson is starting the call and also ending it and in between also I will have Fredrik Nilsson our CFO assisting with the financials and also in the room here we have also Kristoffer Sjögren, Head of Investor Relations, if there is any questions that might be directed to him as well, so you know that he might be on as well. But kicking off and as usual using the presentation that is on our webpage as a guidance throughout this call. And turning to page two in this deck, agenda, starting off with the highlights. and then some individual comments on our business areas and then Fredrik will guide you through the financials before I do the summary and also some comments on the running quarter and then as usual also finishing off with the Q&A session. Turning to page three, heading for our quarter, another strong quarter and we are performing good and we are generally satisfied with the development throughout the quarter, sales came in with 8.7 billion which is a strong increase compared to last year an increase of 18 percent which is a split for organic sales some three percent mna nine percent and currency six percent um ebta uh up by um 14 percent to to uh 1563 million Swedish kronor, which is then corresponding to 17.9%. And maybe there a comment. I saw some of the early flashes here that you're ending up at 18.0. And this is a rounding error in our calculation is actually ending up in 1794. But then when you calculated it with full millions, it's actually coming up at 18.0. So that is the discrepancy here, which might be noted by some of you. And this is the highest quarterly EBITDA to date for us. Items affecting comparability coming up at minus 194, and we're also increasing the guidance on items affecting comparability. Fredrik will get back and comment on that in his part of the presentation. Very strong cash flow in the quarter, which is, of course, very satisfactory as well, that we see that we are managing inventory and managing accountables. managing our purchasing in a good way which is basically a doubling of the cash flow compared to two year ago with a very strong cash conversion now also in the last 12 months but also that frederick will come back and comment more focused on that also a very kind of a very um what should i say a a quarter we dramatically changed trelleborg in the way that we now finally you might say we concluded in the quarter we concluded the divestments of our tyre business and as well our printing blanket operations which then let's say is leaving this finally leaving this behind us and now we can focus on the remaining Trelleborg fully and following this we also had a capital market day in the quarter where we then increased both our financial as well as our sustainability targets which I trust all of you or most of you already i noticed we don't comment a lot about that in this call but those of you who want more of that you can go back and read on the press release from this capital market day and also of course mentioned also in the quarterly report so very let's say a quarter for us with a lot of things happening and we with a strong focus on the future of trailer book back and comment on that now that we are building a new trailer board and with a strong focus on what trailer is to be meanwhile also delivering we feel strong figures in the quarter uh moving to page four and more comments on the organic sales and here also rounding just to be also clear on that our exact organic growth is actually 3.4 so a little bit closer to to to four than than maybe some of you noted in in your comments at least yourself said analyst noted in the comments but the total is 3.4 which is then Basically, even split where we have a 3% in Europe, 4% in South America, and 4% in Asia and the rest of the world. So very evenly split organic sales in the geographical regions that we are following across the world. And page five then, agenda again, business areas. And then quickly moving to page six, which is a comment on industrial solutions. We're heading here, solid quarter in all aspects. Organic sales plus six, which is somewhat, let's say, mixed performance throughout the different segments. But nevertheless, let's say a solid plus six in the quarter. Very strong sales, especially for LNG-related businesses and also for marine solutions and port and marine operations. We also see healthy growth in aerospace, also automotive, AOE. kicking back, and also we have some nice railway projects being delivered in the quarter. Somewhat weaker sales, which is, I guess, well known. Residential construction is down with fairly sizable figures, and so certain industrial segments will be less so down. But nevertheless, we continue to note that the sales that we have into kind of wholesaler distributor networks was weak for us in the quarter. Overall, EBITDA improved on sales growth and we're keeping the very strong margin from last year, which was kind of a record high margin a year ago, but we are happy to deliver a margin very well in line with this very strong quarter a year ago. And also satisfactory, we can say that inflation, which is of course hitting us both in raw material, even though raw material is flattening out, but we see this kind of labor inflation and general inflation of course still hurting the business, but we feel satisfied with the fact that we have been fully able to compensate for this. So a very solid quarter of industrial solutions, happy with the performance and well managed in most aspects. Look at ceiling, also well managed, but here the demand picture is somewhat more mixed. Organic sales up by 1%, but of course M&A kicking in with 16% up, which is and then some currency on top of that, which means there's a very strong growth of 23% in sales in the quarter in Swedish kronos. Sales growing in America, flattish in Europe, and weaker in Asia, where we have a little bit slower sales development in China, especially for us, where other markets are somewhat compensating. But China is the biggest market for us in Asia, and we have had fairly weak sales in China in the quarter. And also overall in the business areas, we will notice sales to aerospace and healthcare medical increased considerably. We say we are investing into these segments, which is also partly an expression on the lower margin that we are kind of adding resources in order to create even better growth platforms and make sure that we create solid growth in this aerospace and healthcare medical and also in some other segments that we have deemed to be our what we call speed boats for seeding solutions. We are investing in this and we are not really focusing on this individual quarter. We are very focused on creating a platform for the future. Sales automotive increased slightly, although there was some mixed performance there between AWE and aftermarket, where AWE was strong while aftermarket, a little bit surprisingly, was a bit lower in the quarter. But we see that bouncing back. Also, industrial demand is mixed. If you look at the different geographies and we look at the different segments, we note that some of the segments, like the more construction-related segments or more construction equipment-related segments, are a little bit lower, while other industrial segments are better. Here, our view in it is that we also see some inventory reduction among some of our customers in these segments, and that is something, of course, we're watching carefully and where we are a little bit, let's say, flexible in the way we are to manage this. EBITDA improved in the quarter on the higher sales and the integration of M&A, while the EBITDA margin was somewhat down. Well known that the initial lower margin that we get from this acquired growth here, and we also, which I already commented, we are also investing, so we have some sizeable number of new headcounts here in order to create better growth for the future but overall moving forward in the right direction within ceiling solutions we are building a new platform we are integrating minnesota rubber in a good way and we are refocusing the business a little bit to make sure that we are creating a better long-term growth platform for for ceiling solutions and turning them to page eight which is a sustainability kpi we are improving as you see especially intensity but we also note here that the incoming Minnesota is not as good as the rest of Trelleborg and we see future improvement possibilities there but nevertheless overall still an improvement in terms of CO2 and we are feeling more and more confident that we will be able to deliver on our long-term targets here which relates to CO2 emissions and CO2 intensity. Moving then to page nine where we especially track two other areas of sustainability and renewable energy but also here you see even though it's a one percentage point up but also here we note that Minnesota is coming up with almost zero renewable energy so if we exclude Minnesota we have a better improvement here I think we're going if I remember it correctly from 46 up to 53 and now of course we also start to work with Minnesota and we do see great opportunities to improve on this, so we still comfortable also in this aspect that we will continue to improve considerably in the next quarters. Also tracking and also monitoring externally is our lost work cases in this one also we see even though it's a small number in total, we are not overly concerned with it, but we notice satisfaction also here that this is kind of getting better and this is also an area we will continue to invest and we will continue to improve turning to page 10 agenda financials and then leaving to frederick to guide you through starting at page 11. frederick please go ahead thank you peter looking at the sales development organic sales increased by three percent in the quarter quarter with organic growth in both business area

Report net sales up 18% in the quarter. We have 9% impact from acquisitions and currency added another 6%. Moving on to page 12, showing the historical organic growth. The second quarter was another quarter above our sales growth target. And as you also can see in the graph, we have now nine quarters in a row that has been above 8%. Moving on. to page 13, showing the quarterly sales and rolling 12 months for continuing operations. The 8,696,000,000 in sales were the highest for a second quarter. And if we look at rolling 12 months, the sales reached 33.1 billion SEK. Moving on to page 14, we have a record high EBITDA for a quarter and it has reached 1,563,000,000. And it was an increase with 14% compared to corresponding quarter with profit growth, as Peter mentioned, for both industrial solution and ceiling solution. In the result, there was also positive FX translation impact of 63 million in the quarter. The EBITDA margin, 17.9% in the quarter, which was initially impacted by acquisitions with lower margin. Moving on to page 15 and looking at EBITR and EBITR margin on rolling 12 months. The positive trend on EBITR continued during the quarter while the margin declined as earlier mentioned. Looking at rolling 12, the EBITR amounted to almost 5.8 billion and with a margin of 17.4%. Moving on to page 16, going into some further details in the profit and loss. We have items affecting comparability in the quarter, 194 million. And we have taken some initiative to adjust our cost base. That's the reason why you're seeing a higher amount during the second quarter compared to the first quarter. And I will come back with the guidance for the full year a little bit later. If you continue further down in the income statement, we have a financial net which was positive in the quarter, 140 million. as it was impacted by a non-recurring income of 218 million before tax. This was related that we closed some interest rate hedges in connection with repayment of loan when we divested the wheel business. Looking at tax, tax rate was high in the quarter, 35%, compared to 24% last year, but it was impacted by a non-recurring tax expense of 150 million in the quarter, This was due to that we made some changes in the group's legal structure after the wheels divestments. So if we exclude for that one-off charge to the tax line, the underlying tax cost for the quarter was 25%. Net profit for discontinued operations includes the capital gain for the tire business and printing blanket business. the total capital gain amounts to 6 billion 189 million before tax and 6 billion 52 million after tax moving on to page 17 earnings per share if you look at items excluding affecting comparability up nicely with 30 percent to 4.71 and if we're then looking at the total group then of course it was up quite significantly due to that we have the one of gain linked to the wheels and the printing blanket business, and then it amounted to 27.67 SEK a share. Moving on to page 18, looking at the cash flow, which was really strong in the quarter, amounted to 1,585,000,000 compared to 798,000,000 a year ago. Good EBITDA improvement, but even more encouraging, a strong working capital improvement compared to last year. Then as earlier communicated, capex slightly higher compared to last year. Moving on to cash conversion. And as Peter also mentioned, we have a good cash conversion. You can also see the trend is going in the right direction since a couple of quarters back. Moving on to page 20, gearing and leverage development. And here I would like to highlight that we now are in a net cash position. KPIs here will look negative, but that is due to that we are in a net cash position. So if you look at the reported debt ratio, that becomes negative with minus 4%, and net cash in relation to EBITDA is 0.1 in the quarter. We have also continued to buy back own shares during the quarter, and that amounted to 957 million during the second quarter. Moving on to page 21, return on capital employed, reached 13.9% in the quarter. And this was impacted by acquisitions, which initially has lower returns. I will finish off this section by the financial guidelines for the full year. Most of them are unchanged. But if we start with CapEx of 1.5 billion for the full year, unchanged. Restructuring costs, we have increased from 250 to 400, and that is due to that we are adjusted our cost base to the somewhat low demand, and also that we are working with some of the acquisitions to realize some of the synergies. Amortization of internables unchanged of 500 million, and underlying tax rate for the full year remains unchanged at 26%. By that, I would like to hand back the microphone to you, Peter.

Thank you. And quickly moving on to page 23, agenda again. The summary and some finishing off and some comments on the outlook for the running quarter. Page 24, another strong quarter, a strong sales increase of 18% and a split on organic sales, M&A, up almost 10%. Currency, of course, also benefits, as we all know, from the Swedish krona's weakness. EBITDA up by 14 percent and to a margin of 17.9 or 18.0 depending on how you calculate and this is then turning out to the highest quarterly EBITDA to date. Items affecting comparities somewhat higher on a higher level with also Frederic will comment on link to some ongoing measures to adjust in the areas where we are that's a hit with the lower demand but also to make sure that we get the synergies out of the acquisitions kind of announced. Cash flow very strong almost doubling to a year ago which then turned into a very solid cash conversion and of course also we noted satisfaction with all of you already know that we have let's say fully finalized now the disposals of the tire business and the printing blankets and that is also on the Captain Marketeer day which we held a few months ago was updated our financial and sustainability targets Once again, you can read more about them in the press release from this event or in our quarterly report. Turning to page 25, we are guiding for the running quarter to have a somewhat lower end of the second quarter. We are not really seeing yet, if I say, the underlying demand deteriorating. But of course, we note with kind of some awareness that, let's say, the external macro data continues to go down and we also see our customers in some areas becoming a little more careful with focusing on inventory and also with kind of the order backlog. We also see that some of the customers being a little more careful. So all in all, we make the conclusion that it's going to continue to be a somewhat lower demand in Q3 compared to Q2. No drama in this and this is a direction which we feel is well in line with the kind of the ways all once again, all the macro data is being reported and the guidance that we usually follow ISM or VDMA or whatever, of course, pointing towards a slightly sour environment. But that is the kind of development which actually we are quite okay with as we are kind of working on integration of acquisitions and we're working in creating a better platform for growth being forward and also with the strong balance sheet we have and our ambition to continue to make M&A, which is also might be a development which is actually good for us in these aspects. And that is something, of course, we're working actively with to try to utilize this uncertainty, which we see in certain parts of the market. And then, of course, we know the political situation, as all of you know, with Russia, Ukraine and other kind of discussions ongoing there is let's say as we see it a higher degree of uncertainty in these aspects that are normally and that is why we're making a special point on that as well um turning to page 26 agenda q a and then quickly turning to page 27 and opening up for four questions so please go ahead those of you interested in uh getting some more flavor on this report. So please go ahead.

If you wish to ask a question, please dial star five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial star five again on your telephone keypad. The next question comes from Carl Bockvist from ABG Sundal Collier. Please go ahead.

Yes, hello, thank you and good afternoon. First one just on the outlook comment there and if you feel that the somewhat lower demand you anticipate is due to mainly a change in kind of end market demand or if it's more related to the inventory adjustment among your customers.

It's a combination. We see in in markets we say let's say construction related markets indirectly some construction equipment maybe some some some agriculture in those areas which is a kind of a strong consumer of different kind of hydraulic neurotic power equipment where we see a weakening i mean we see the order back i don't know i only briefly checked on the volvo but i saw the they know the construction equipment is down by some 40 percent if i'm correct and i mean this is of course something we also see in this part of the markets But also in other areas, we also see this more focus on inventory and focus. I mean, as you say, that is a part of inventory reduction, but also I think an impact from, and that is where it gets a little more difficult, the impact from reduction in leave times, because the capacity is increasing and we see that delivery times getting shorter and we see some of the customers order with kind of a little bit shorter cycles. But overall, is a mix is a mix of of let's say inventory reduction for sure also called we see in certain areas where we see it's a weakening but also to balance that of course i'm strengthening continuous strengthening automotive doing fine and we see also aerospace and medical healthcare continuing and we see also some other let's say end markets which is still strong but overall we see in the big segment of ceiling solutions with this kind of fluid power which is related to construction equipment, different kind of tools and different kind of equipment where there is a certain weakening for sure. I don't know whether that is enough for you.

Yeah, no, that's good. Thank you. And then within industrial solutions, the EBIT aim origins are up clearly compared to the first quarter. Seasonality is one thing, but there seems to be other aspects here as well. So could you just explain if in case there are any particular aspects to keep in mind and also just going forward how we should think about the profitability within industrial sports the coming quarters really in case there is also a bit of a foreign market i mean we see there's a mix i mean we have already commented i mean that that is a good i mean within industrial solutions there's a mix of early cycle light cycle call and the light late cyclical which is more railway uh

marine construction and maybe so some lng is kind of living its own life in a way oil and gas so there is a combination and we this is some some up some down but it's a well managed we are as a quickly adjusting for for the down segments while trying to benefit from from the up segments so we don't really it's not a particular change from before i mean we i think we guided on capital market day that we still aiming for a slight uptick in margin year on year, but it's not going to be any drama. And we feel that we're moving this business in a step-by-step improvement area, but I don't really want to give any more guideline exactly on the margin or what we're doing. This is a long-term effort and that has been, industrial solutions has been improving for a multiple of years, step-by-step. And that is kind of the ambition going forward as well.

Understood. And then just the final one on the perhaps let's call it timing between now when you are investing and adding costs related to medical and Minnesota and when you first expect to start realizing synergies, be it on revenue or cost.

Cost synergies is fairly okay. For Minnesota, I think that has been well delivered. But of course, the sales synergies we're aiming for takes a little bit longer time. And I mean, it's really, we have guided that we're going to be back and we have no kind of margin impact from lower initial margin in MRP in two, three years. And I think that is something that we need to adjust to. And of course, step by step, we're going to get closer to that overall margin within ceiling. And at the same time, also start to get the benefits from, we are already getting benefits in partly in aerospace and medical healthcare. And that is something that we also continue to invest. So we are kind of ahead of the curve. maybe investing more than we get the benefits if you simply focus on margin optimization then probably we shouldn't invest in this but we want to create a better better long-term growth profile and that's kind of our target at the moment to to build a better trailer board with a long-term focus and to get and deliver on on these targets that we have that we're going to get to an ebitda margin of 20 plus and on top of that also delivering solid growth here of some above 8% annually. And I mean, we feel that we are well in line, well, let's say, geared up to achieve that. And that is kind of our target at the moment to create the foundation which will deliver this financial KPIs over time.

Understood. That's all for me.

Thank you.

Thank you. Hi, Peter and Fredrik. My first question was also on this. I want to come back to the margin here. To me, at the Captain Marcus Day, I really like the margin ambition, but I struggle a little bit with the moving parts of why we should get this 50 basis points per annum improvement to the margin. I'm trying to understand to what extent this quarter had any project deliveries end of the quarter with a good margin. And if that's the case, Typically, those deliveries used to have a negative margin impact on projects, and it looks like it's projects with positive impact, which is good to see. But if you could comment on that, Peter.

Are you talking about industrial solutions now, Klas? Yes. It is more project dependent, and it varies in between quarters, and that is why, okay, I know you're focusing on the quarter, but for us, it's more a rolling 12 development, and that's going to be some deviations between quarters, but we feel that not necessarily, I mean, okay, that was probably, let's say, more the old story of a bad margin when we had kind of more oil and gas exposure and stuff like that. But the projects is not necessarily having a worse margin. It varies a little bit and of course it comes on top. Contribution margin brings, it comes on top of everything else, but that is, that's the way it is. But I mean, in general, I don't, feel that the project business is kind of worse than anything else. It's more like a bit bumpy on the sales side, but from a margin perspective, it's really not any kind of drag in any way as we see it.

If I may say also, I think you're correct, Dos, in that the project businesses that we supply today does have better margins than a few years ago, if you will. And we have divested a lot of projects that did not help contribute towards our margin ambitions. Whereas today's LNG hoses and so forth tend to be a good project margin for us since a couple of years or a year back. Yes.

That's great.

If we do invoice for a project today, it does not hamper the margins. It's going to be bumpy in sales, but not in modern.

Very good. My second one is on the construction verticals. And Peter, can we talk through rough magnitude of the declines here and by regions? You're going to meet easy comparatives in the second half, at least in Europe. And I'm trying to understand the volume declines better. And also if you could help us with how much construction Europe is for you at group level. And then finally, sorry, a lot of questions in one. How much is new build versus replacement?

If you say the construction, I mean, we have some early cycle construction, some late cycle construction. If you say early cycle construction, which is more kind of window manufacturers and stuff like that, that has already been hitting us in Europe since, as you say, a year ago. But I mean, basically, hitting us now in North America. And then we talk tens of percent in a downturn in that segment. And that is something we don't know exactly, honestly, how much is inventory for the window manufacturers and how much is really underlying demand. I think it's a combination. And we do expect that to flatten out on a year-in-year comparison here by the end of the year. Not necessarily in Q3, but probably going into Q4, it's going to be more flattish year-in-year and potentially slight uptick. But that is mainly... hurting industrial solutions, which is then, in industrial solutions, being compensated with other strong segments. So that is something which we don't see as... But that has been the dramatic downturn, if you may say. And the other construction-related exposure we have is more in sealing, which then comes into equipment for construction. And that's an area where I think we are entering that. This quarter was a bit lower. in order intake we see that once again i don't want to point out volvo they have to comment on their figures themselves but we use that since that is kind of the flavor of the day down by 40 it means of course that they start to order a bit less from us and that is something we we note now and where we probably saw a little bit this quarter where we saw probably we expected to escalate a little bit into going to q3 in that segment and that is more difficult to uh to quantify at the moment to be honest but there we're not talking tens of percent they may be talking more potentially 10 percent but for us because there is also we're supplying both the oe into the aftermarket so that is something which is more difficult there's more of inventory build up and stuff like that and then when you talk about new construction renovation i mean windows is a lot of if you may say renovations but nevertheless it is kind of um so there we see new construction new sky rises and stuff like that is still still holding up fairly well but that is driven not by europe and more driven by asia and middle east and all of that so that is still okay but we cannot really see how much of these window manufacturers who goes into if i say renovation and new construction we don't know that and then i mean we need to look and it's not a major part of trelleborg we don't want to kind of As I said, I mean, the most dramatic downturn we have had is industry solutions, but that is kind of more compensated, well compensated by other strong segments. So that is kind of a mixed bag of business. So I don't know whether that will give you some more flavor on the way we look at that.

That's good. Very quick final one on the aftermarket and autos in ceiling solutions. You said it was lower, but bouncing back. Are you seeing this already in July or is it something you expect?

And I agree... That was a temporary downturn, which was kind of unexpected for us, to be honest.

Because you have the brake shims there.

It's the brake business who was that one. And we are actually... Yeah, that's bouncing back. Maybe we can credit... It was already bouncing back here during June. But it was a major impact. There's a few big customers in that one making brake pads and for whatever reason, which once again, difficult for us to really fully understand that they were kind of two of the bigger ones suddenly didn't want to buy anything for a month.

Okay, thank you.

The next question comes from Hampus Engelhau from Handelsbanken. Please go ahead.

Thank you very much. I have two questions, if I may. Maybe starting off on the organic sales growth during the quarter at 3%, and when there's between industrial at 6% and And the ceiling at one. And if you strip up the price contribution, which I would assume would be quite high, given we've seen inflation rate trending, I would assume that we have negative volumes. And if that is the case, is that for each of the business area in specific segments, or is it broad-based lower volumes? That's my first question. You can go with that one first.

Yeah, I mean... If you're looking at taken by BA, I mean, with industrial solution with 6%, that implies there was a small volume growth, underlying volume growth. But of course, with ceiling solution of 1%, that was negative from a volume point of view.

And in ceiling, is that some specific end segments that you should think about, or is it kind of broad-based?

I would say it's more the general industry so it's more overall than a specific segment.

It's a hydraulic pneumatic which is a big one where we have a multiple of customers multiple of end markets where you have this kind of all kind of moving parts we have that and that is probably the area which was kind of a little bit but there is where we're reading in campus that that was kind of inventory reduction on our customers in a multiple of kind of problem for us if we sell into a bacon pump or something then of course we sell seals and they have some sub-assembly parts on on vacant palms and then they have finished vacant pumps if they decide to kind of cut down an inventory it's kind of hitting us in in a different in a few different steps and that is what we've seen especially in in this if i may say again on this what we call fluid power segment which is a sizable segment within ceiling even though getting smaller in in and the relative size as we grow aerospace and medical and some other sub-segments.

Fair enough. And if we look at, could maybe add some more flavors on the order activity during the quarter and also a bit on the lead times. Are lead times shorter now in second quarter compared to first quarter or how do you think about that?

It is shorter lead times. I mean, the customers are ordering with shorter lead times expecting shorter lead times and that is why it's also make the order book a little bit trickier to discuss i mean we have commented as many times the order book is shrinking but it's shrinking the majority of it is shrinking with kind of long-term orders which is let's say three months and beyond and that is why it's difficult to really get the firm conclusion out of it since they are let's say ordering with shorter cycles and i mean we have been moving from more or less, if I may say, 100% orders going into a quarter and now maybe getting back to a normal scenario, let's say before this, let's say lead time challenges, where we had 75% give or take of the orders when we go into a quarter. And I mean, a few last quarters, we've been almost 100%, or sometimes on top of 100%, because we know that some of the guys have been delaying the orders. So that is where, all honestly, it's a little bit difficult for us to really follow that because it's definitely changing the order pattern and changing the way customers expect us to deliver. But as a fact, the order intake was lower than sales in the quarter. But once again, I mean, we have difficulty to get to a very firm conclusion on what impact that will have on sales. Are you following me?

hampers not to be too complicated but i hope you're clever enough to understand maybe i can do one more more question just just because if i remember correctly in third quarter last year we had a similar inventory reduction i think skf was very very outspoken on that but they then were more indicating that we had a weaker underlying demand and then we had demand just coming back for you guys

do you have like more more visibility this time to say that it's it's not not only inventory adjustments at customers that it is actually such low in demand or if it would compare the third quarter i mean we i don't recognize that comment from a year ago from us because i mean we have not seen this no no i know that no no so we see this q2 q3 now coming into q3 where we do expect some inventory reductions and we do expect also in q3 some underlying softening once again we talk about construction construction equipment agriculture which is a big user especially of this kind of fluid power equipment and they are cutting inventory they are maybe having less hydraulic cylinders on stock and they're having less so that that is going to happen but but so i think there will be an over softening in a way in in q3 due to the fact that you have some softening end-user demand, but on top of that, an inventory reduction. But really, to split that is honestly challenging. We are trying to look at this, but we do see VDMA and all of that that is indicating kind of lower expectations, even though VDMA is difficult to read because that is more based on expectations than really thermometers.

All righty. Thank you.

The next question comes from Agnieszka Wajlela from Nordia. Please go ahead.

Perfect, thank you. My first question is on the pricing component of your growth. I guess that there is some carryover from the price increases that you implemented quite some time ago. So I would like to ask when was the last time you implemented price increases and also what are your expectations for pricing going forward?

It's of course some rollovers from earlier price increases but I will say that is of course getting less and less by a quarter and we are continuing to raising prices when it's possible so it's I would say it's impossible to explain and saying when we lost to increase the prices.

That's part of also I mean we are continuously doing that we are working on the prices every quarter we're doing it every quarter but of course it's not as dramatic as before but for sure we are still pushing in. We had another round of price increases here from 1st of July, and we're going to have more price increases kicking here from 1st of September. That's depending a little bit what kind of contracts you have with your suppliers. So price increases will continue. And I'll be clear on that. We do not see any kind of price decreases at the moment. We know that some of the raw materials are flattening out. But I mean, with the, if I may say, the new Trelleborg, we're going to be a lot less dependent on raw materials. And we are not really exposed to these kind of fluctuations that we saw more in kind of our wheel systems business before where we were exposed more directly raw materials our raw material content generally in our products is very limited so of course we have some pockets where this might be higher but in general now we have very very low raw material exposure to be to be honest and so we are not really working on that so more the price increases is more As Fredrik said, it's more continuously addressing where can we increase pricing, where are we creating a lot of value, where do we have a position to kind of be able to further persuade the customers that we're creating value for them. That is a continuous effort. We are by far not ending the price increase. The price increase is never going to end. It's always going to be an item on the agenda.

Perfect. Thank you. Thank you for the flavor. And then my second question probably to Fredrik. Out of the 150 million increase in your restructuring effort, how much is related to the integration of acquisitions and how much to the country structuring due to expected somewhat lower demand?

By far, the majority is related to the lower demand.

And just when you budget for that, maybe first of all you could give us a bit more information about what you're doing, what kind of restructuring efforts are you taking and then also what kind of growth decline or volume decline are you preparing for when it comes to H2O 2024?

I mean, that is already what we saw in Q1. So we are adopting and also what we saw towards the end of last year. So, I mean, it has been a reduction of headcounts. We have closed one or two, three new factories, some factories. So it's mainly those kind of costs. And then, of course, when we see a further decrease of demand, then we accelerate and do a little bit more. So it's not that it's a big thing at one site. It's more that we take a little bit here and there.

And we're doing that all the time, but we have internally here that it should go above 30 million or 40 million. One product should be above 40 million in order to call it. So that is ongoing also in the underlying business where we continuously adjust.

So this is the larger one. And then, of course, with some closure of some sites that was part of the plan.

But it's not like you're preparing for a massive decline in demand.

Sometimes if you have a few areas, that sounds bad, maybe you use this opportunity to create a more efficient structure and you need to push it through. It's a little bit easier when you have a downturn and that is of course where we have always a long list of ideas and sometimes you pull them out of the drawer and you use them and sometimes you keep them in the drawer.

Perfect, thank you. And then my last question is on China. and Asia, but predominantly China. We get, I would say, quite mixed commentary from different industrials now in the reporting season. So some see some improvement in the industrial demand, some see not that much rebound there. What are you seeing? What are your expectations?

I mean, we did expect a rebound, but the rebound is not really coming as we see it. And we see that there is some kind of, which is kind of benefiting us long term. There's some localization ongoing that, I mean, people are getting a little bit concerned with China being dependent on imported material. So there is definitely some changes in the supply chain. But overall, I mean, we... We see a worsening. I mean, I think you're following as well. I saw one study from you, actually, from Nordea this morning, where it was kind of more focused on consumer confidence and savings rationale and all of that. So that is where we see these segments, which is more linked to consumer spending, is kind of shrinking. We have the construction-related segments. It's a mix, but they still continue to invest a lot in railway. They invest in energy. um subway still being let's say being built out and all of that so it's a little bit dependent on what kind of segments you're exposed to but for sure construction and consumer segments is a lot down it varies also between the different kind of parts of china like north is tough dalian senyang and then you have of course the government business more in beijing tianjin area which is still holding up and more industrial areas which is qingdao and Shandong province and around Shanghai is still, let's say, a mixed message. And then you go down in the South, where we're still holding up the consumer-related in, let's say, Hong Kong and Guangdong areas, of course, more impacted by lower demand. So it is a little bit, that's all right. China is a big country, and the different regions is a little bit moving in different directions. But for us, if I may say, overall, it's a softening and it's related to construction and consumer related businesses while the pure infrastructure related is still holding up and also the export business is mixed. I mean that is where we need to see that this kind of restrictions kicking in in a few areas and that is a little bit dependent what kind of customer exposure you have. So it's not an easy question to generalize about China because you have to break it down in region, you have to break it down in to the different subsegments. Yes.

Thank you, Peter. As a reminder, if you wish to ask a question, please dial star 5 on your telephone keypad. There are no more questions at this time, so I hand the telco back to the speakers for any closing comments.

Thanks to all of you for joining us on this call. As usual, we look forward to seeing you in different environments and meeting up with you to clarify any potential outstanding questions or if you want some more flavor on some topics, happy to support both Fredrik and myself, but especially Christopher is available here for any potential follow-up. Take care and see you soon.