Trelleborg AB (publ)

Welcome to the Trelleborg Q3 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. Peter speaking, welcoming you to this interim report for Q3 2023 for Fortalaborg. I'm going to start off with some overall comments and also commenting on the business areas and then Fredrik will guide us through the financials before we sum up with the summary of our presentation and then opening it up for a Q&A session. in a way as usual when we are presenting our quarterly reports. So moving over to the slides with a trust you can see on the screen if you have not have them already downloaded from our web page. Turning then to page two agenda, starting with the highlights, then as I said before, go through the business areas, commenting on the financials, make a summary, and then go to the outlook for Q4 with some comments on that. and then opening up for the Q&A. So turning then to the next page, page three, heading for the report, continued strong earnings growth. As you can see, we are growing our sales by 12%, supported by currency, but also supporting by some structural growth, some acquisitions. while organic sales is flattish or slightly in the negative territory, while then, as I said before, M&A adding some shy of 10% and currency some shy of 5%, which in total then sums up at 12% sales growth. And a similar growth in EBITDA, it grew by 11%, which means that the margin ends up at 17.6%, which is kind of an inch down a nod down compared to a year ago. So basically we were able in the core fully for the inflation and also to absorb some of this M&A coming in with a slightly lower margin. So basically a good performance for us and where we are able to manage these flat dish organic sales in a good way. Continue to restructuring, continue also to develop and create a more efficient Trelleborg. We're investing in the structure and we have already, as we commented on already in the last quarter, we have already several actions initiated and more of them ongoing in order to adjust for this more flattish sales development expected for us. Cash flow very strong, very happy for that. Managed working capital. We are, let's say, giving credit to our units, managing inventory, managing also account receivables in a very good way. It turns out a very good cash generation, even though, as you will see later, Fredrik will guide you through that, even though we remain also on a high capex level. But all in all, a very good cash conversion. If you're looking for the last 12 months, Fredrik will also guide on. We also highlight that we actually divested an automotive-focused operation in the Czech Republic signed yesterday. So that is kind of the last kind of non-core operations being divested from us. There might be some minor fine-tuning, but this is one thing which we have been reporting centrally in Trelleborg, so it's not been part of any business area. and this is a let's say a zero profit activity which we know divesting and exiting so we are happy to get that done and move forward now and only having core businesses left in interlable so moving on to the next page some some more comments on organic sales as you can see more relatively okay. We're still positive in Europe and flattish in North and South America while we see Asia going negative. So Asia is the one which is pulling us into negative territory and then as for a lot of other guys primarily China then which is still a bit short of expectations and where we are also managing this in a good way of course adjusting for this lower demand in China as well but overall means that we end up at minus one on the totality uh turning to page agenda point again on page five business areas quickly then turning to page six uh heading industrial solutions continue to improve uh highest margin to date for this business area although organic sales is uh here as well minus one uh mixed bag of performance i get back and comment on that one m a a tiny add-on here from a small Small M&A that's been done in the last year. We note continued weak sales. You say weaker sales. I mean, I don't say it's just being bad, let's say any worse than before, but it remains on a low level. So quarter on quarter, flat-ish, while on year-on-year still substantially down. So that is kind of what is pulling us down overall. And also we note in certain what we call industrial segments, um there is also negative growth and this is how to get back and comment more maybe on ceiling solutions where we know that there is we believe there is some inventory reductions ongoing which is then impacting us as well as others who supply components into these more capital goods related industries very strong sales in the marine segment and especially happy here that we say are growing in what we call Our smart port concept, which is more what we call marine technology business. So that is, let's say, a strategic move that we've been pushing for for some time. And we now know with satisfaction that we see some benefits of this. So this is good sales and also having a positive impact on the margin. On the more kind of stable business, if I may say, automotive railway developed also favorably. which is railway related more to product sales, while automotive underlying demand keeps on a solid and healthy level, which is benefiting us in industrial solutions. And in total, then EBITDA is up on price adjustments. We are hit by the inflation here, but not the big thing anymore. But nevertheless, it's been a positive in the quarter. And on top of that positive mix, as I said, marine segment is coming in and bringing up the demand somewhat by delivering better profitability than the rest and all in all once again highest EBITDA margin and we are now in this quarter 16.2 so of course with satisfaction not to say that we remain forever quarter on this 16 but nevertheless we are approaching a higher level and we are satisfied with the development on industrial solutions and we do believe that we will continue to improve this step by step turning to the next page ceiling solutions here i mean a lot of investment is ongoing and we are both integrating minnesota rubber while also continuing to invest especially aerospace in medical and healthcare, and also in electronic semiconductors in order to grow those areas. In the quarter, we had aerospace and healthcare, medical remained favorable, good growth overall. Automotive increased as well. While we're here, it's being hurt a little bit, what we call industrial demand, where we see that some segments is down substantially more than underlying market, which we then read there is some inventory reductions ongoing. It has been ongoing also in the last quarter and continued into this quarter. Difficult really to estimate how long it will remain, but for sure we are at the moment kind of delivering below the underlying market, which is definitely then impacted by this inventory reduction for some of our customers. And overall, that means even though EBITDA, in absolute figures, improved. We dropped on the EBIT margin, which is then due to acquisition of MRP still being integrated and still having a negative impact. And also on top of that, these investments that we're doing, especially in people, is hurting us somewhat in terms of profitability, while we, of course, are doing this in order to create a better foundation for both growth and profitability long term. So overall, Although the margin is down, we are satisfied with the development of ceiling solutions. There is, of course, improvement areas as everywhere else. And we are looking forward to this kind of industrial supply getting back while remaining positive on aerospace, healthcare, medical, as well as electronics or semiconductors. So this is the quarter for ceiling solutions. Moving to page eight, some on sustainability. Continue to improve, focusing here on CO2. 20% down on intensity year on year. Of course, a solid movement. But also, for those of you reading, moving to the next page and talking about more what is behind this is, of course, that renewable energy is increasing and we're now running at the 60 percent level and we do expect that to increase further so we do expect our co2 emissions to continue to go down very good development in this area so credit to the people within Trelleborg working with this and we have see a very solid ground to get to our targets in this Also on the right side of the slide, you see lost work cases, which of course extremely important as well, safety at work, as we call it internally in Trelleborg, which is also continuing on a good level. So well managed in terms of these key sustainability KPIs. And as stated before, this is of course a focus area for us. And we do, although good, let's say development, we do expect continued improvements going forward.

uh moving to the next page page 10 agenda financials and then to page 11 where i hand over to frederick to go through the financials thank you peter looking at the sales development on page 11 we have organic sales decreased by one percent in the quarter both business area declined by one percent reported net sales increased by 12 percent We have 9% impact from acquisitions during quarter, while currency added 4%. Moving on to page 12. The third quarter was a spot on quarter on our sales growth target. And as you also can see in the graph, we have been on or above our sales growth target the last 10 quarters. Moving on to page 13. showing the quarterly sales and rolling 12 months for continuing operations. The sales of 8 billion, 458 billion was the highest to date for a third quarter. And at the rolling 12 month basis, the sales almost reached 34 billion stick. Moving on to page 14, looking at the EBIT A. EBITDA, excluded items affected comparability, increased by 11% to 1,487,000,000 with profit growth in both industrial solution and ceiling solution. In the result, there was also a translation impact of 34 million compared to the corresponding quarter last year. EBITDA margin, 17.6% in the quarter, initially impacted by acquisition, as Peter mentioned, but we are also investing in the organization of some fast-growing market segments. Moving on, page 15, looking at the EBITDA and EBITDA marginal rolling 12-month spaces. The positive trend continued with increased EBITDA. As we earlier communicated, the margin declined somewhat in the quarter. On the rolling 12 months, Debit A amounted to 5,980,000,000 with a margin of 17.4%. Moving on to page 16, looking at some further details in the income statement, we have items affecting comparability in the quarter of 111,000,000, which is entirely related to restructuring costs. And those restructuring costs are because we are adjusting our cost base due to the lower demand. Financial net decreased from 69 to 44 million. That was an impact on higher interest expenses, but this was offset by higher interest income attributable to the group's net cash position. Tax rate for the quarter amounted to 25%. We were earlier guided for 26% for the full year, and that still stands. Moving on, page 17, earnings per share. Earnings per share for continue operations increased by 90% from 3.52 sec per share to 4.19. If you don't look at the group, it's down 20% and that is due to the earlier divestments of wheel system and printing blankets this year. The impact from those to Business units is 1.46 SEC. Moving on to page 18. As Peter said, we are really happy about the cash flow development. We're now seeing an increase from 928 million SEC to 1.6 billion SEC. Supported by higher earnings generation, But particularly, we are seeing a very good working capital development. Improvements both in inventory, receivables, and in other working capital items. Net capex up as earlier communicated, and this is because we're expanding our footprint with earlier communicated greenfield investments. You can also see that leasing payments is higher in the quarter, but that's linked to the ongoing greenfield investments. Moving on to page 19, looking at the cash conversion on a rolling 12 months, you can see the very good trend continue, and we now have a cash conversion ratio of 99%. Moving on to page 20, looking at the gearing and leverage, as the group is still in a net cash position, the sign has now switched to a negative, but that means that we have a net cash position. We have also done a share buyback of almost 1.2 billion SEK during the third quarter. The net debt slash net cash in relation to EBITDA was minus 0.1 end of the quarter. Moving on to page 21, return on capital employed. It reached 13% in the quarter, and that was because it was initially impacted by acquisitions with lower returns. That's the reason for the decline in return on capital employed. Going over to page 22, some guidance for the full year. CapEx 1.6, it's an increase from 1.5, and that is due to that we have a good pace on our large projects. will also be in a relatively high capex level in 2024 but then we expect a significant drop in from 2025 so from current level we assume right now that it should be around 500 million lower restructuring costs we are increasing them from 400 to 500 and that is due to the integration of acquisitions and also the measures we are addressing to to address the challenge with the lower demand. Amortization of insalubrious assets, around 500 million, and the underlying tax rate, as I said, 26%. And by that, I would like to hand back the microphone to you, Peter.