Trelleborg AB (publ)

welcome to the trellborg q4 report 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 pound key 5 on their telephone keypad now i will hand the conference over to the speaker ceo peter nelson cfo frederick nelson cfo frederick nelson please go ahead

Hello everybody, Peter Nilsson speaking. Sorry for the mishap here. We don't know exactly what went wrong, but something went wrong. But now we are live. And as usual then we would like to refer to the presentation which is on our webpage and where we are presenting the results for Trelleborg in Q4. October, December 2023. Rapidly moving then to page two with the agenda page, where we're then going to talk about the highlights, business areas. Fredrik Nilsson, our CFO, will then guide us through the financials and then we will sum up with a summary and some comments on the outlook for the running quarter. And then of course, as usual, also open up for Q&A. Turning then to page three, solid end to the year we feel that we have had a very solid Q4 very much in line with our expectations and yeah according to our expectations basically all across sales at a little bit north of 8.4 billion Swedish which is an increase of 4% compared to a year ago where organic sales is unchanged Acquisitions adding 3% and currency adding another percent when we report in Swedish Kronos. EBIT A up by 6%, which is kind of a nod above the sales, which then means also that the margin will be a slight uptick compared to a year ago. Items affecting comparability. At 260, we're restructuring charges 173, and we also have recorded a non-cash loss on a divestiture done in the quarter. Cash flow is strong at 1.3, not as strong as a year ago, but a year ago it was a very strong cash flow. And basically everything in our balance sheet managed in a good way. I mean, we managed inventory in a good way. Payables is good. Receivables is good. but of course impacted once again by tough comps and also with a slight uptick in capex in the quarter compared to a year ago. We also note in the quarter a very satisfying acquisition made in South Korea where we bought a company, a local company, very specialized in special seals for Semicon equipment and that we see as a strategically very nice acquisition for us. We were just creating a strong position in the biggest semiconductor market in the world and also creating a great foundation for us to use this technology and this experience that this company has in order to bring it also into other markets, primarily in Asia, but also providing benefits for us and supplementing what we have in our range today also and making it possible also to create a foundation also for this interesting segment also in Europe and North America eventually. Also maybe worthwhile mentioning here also, we probably should have been on the page, but sometimes you do mistakes. Dividend is also, dividend is proposed at 675, which is an up compared to a year ago, of course, subject to a confirmation at the upcoming annual general meeting. Turning to page four, Organic sales relatively flattish all across. Zero, as we already commented on the total. We were a slight uptick in Europe. And of course, still down in Asia, but substantially better compared to last quarter. And also then North and South America, let's say, a slight negative. But overall, relatively flattish, as you see everywhere. And I mean, in comment, we going forward a little bit, we see Europe Basically continuing the same way, maybe slightly more negative view on North and South America, but then a positive view in Asia, where we see an uptick in the order intake in China, where we are believing in an improvement in Asia. Of course, with the note that we now have Chinese New Year coming up, and that it's also difficult to judge that one for quarter one, but nevertheless, overall, Going into 24, we see that Asia, especially China, is improving. Turn to page five, agenda page. Going to the business areas and quickly turning to page six, comment on industrial solutions. Organic sales minus one, M&A adding 2%. basically same development that we saw in last quarter still weak sales in especially residential construction both in europe north america and also in certain industrial segments we still see soft demand in the more kind of distribution related segment but also slightly tougher in in some of the core machinery segments especially in europe no change basically compared to to a quarter ago says the marine segment continues to be strong i mean we already commented on this special law in panama for us but also in other areas related to lng and related to the marine port construction in general performed well in the court continued to perform well automotive also remain high and surprisingly high if i may say but it continuing in a good way and we also see Relatively good momentum in this segment here going into running quarter. Overall, EBITDA up on structural improvements. I mean, you know that we've been investing quite a lot in improving the overall business setup in natural solutions. We see benefits from that and also continue to see a positive sales mix as in the last quarter. And we also note with satisfaction, of course, that this is the highest margin we have had on industrial solutions ever in Q4. Moving then to page seven, and commenting on Trelleborg ceiling solutions. Again, sales slightly up, 1%, M&A adding 4%. Also basically comments very much in line with what we see in industrial solutions. We see the general industry declined in most markets, as I mean we see also Europe and Core industrial demand is a little bit softening. We read into that continued inventory reductions and not really much change compared to last quarter. Automotive demand also here, up. And then we continue to see strong sales in aerospace and also satisfactory development also in healthcare and medical, although we see some hints in certain parts of this that we see some customer inventory adjustment kind of continuing there as well, but we see a good underlying demand, a good continued lesser order intake. EBITDA and margin declined, mainly linked then to as we have commented before, also acquisitions coming in with lower margin. We see the integration is running good and we are getting closer to what we had before. We see this as we expect is to continue to move in the right direction also noting highlighting again that we continue to invest especially aerospace healthcare medical semi-con some automation and some other segments where we would like to create a better foundation for growth going forward which is also continue to hurt the let's say the operational result in ceiling solutions um so that is kind of no surprises here either and that's a basically a movement very much in line with our expectations and and with our guidance and then turning to page eight a few slides here on sustainability continue to improve in all dimensions or let's say co2 intensity continue to improve and our kind of total consumption of co2 or emission of co2 is continuing also downwards. So turning then to page nine, I mean, the biggest driver for this is the share of the renewable and fossil free electricity, which is continuing to improve. And we also here highlight also lost work cases where we also continue in a good way. So also well under control in terms of sustainability. And we are, let's say, performing well ahead of our previous targets for especially for CO2. And, of course, we're now moving also the science-based target initiative also, as you note, has been approved. And we are now kind of moving away from the previous fulfilled target and launching. We have launched a new target, but we're now running into that in a more formal way. Turning to page 10, agenda slide again, financials, and quickly turning to page 11, where I hand over to Fredrik to guide you through this.

Thank you, Peter. Moving on to page 11, looking at the sales development. We have a flat organic sales in the quarter. Sealing solution reported growth with 1%, while industrial solution declined by 1%. And as Peter mentioned, reporting net sales up 4%, 3% impact from acquisition, and currency added 1%. Moving on to page 12. Looking at the historical organic growth trend, we were below our sales growth target in the fourth quarter. But please remember that we reported 15% organic growth and 23% in total growth in Q4 2022. Moving on, page 13 showing the quarterly sales and rolling 12. The 8.4 billion in sales were the highest to date for fourth quarter. And if we look for the full year, the sales reached 34.3 billion with an organic growth of 2% for the full year. Moving on, page 14, looking at the EBITDA and EBITDA margin. EBITDA excluding items affecting comparability increased with 6% to 1,424,000,000 with profit growth in industrial solutions while ceiling solution was on par with prior year. In the result, there was also small translation impact of four million SEK in the quarter. Margin 16.9 compared to 16.5 the prior year. And this is despite this was Peter mentioned with initial impacting from acquisition with lower margin and the investments we are making in the organization on fast growing markets. Moving on to page 15. Looking at the margin, the positive trend continued with increased EBITDA. And if we look for the full year, we were for the first time above 6 billion, with 6 billion 2 million in EBITDA for the full year, with a margin of 17.5%. And EBITDA and the margin were the highest to date also for quarter. Moving on to page 16. looking at some details in the income statement we have items affecting comparability of 260 million in the quarter which was higher than last year or 115. looking into some details here we have restructuring cost of 173 million and that is due to that we are adjusting our cost base due to the lower demand and we are also divested as early communicated our offshore and oil and gas operation in the u.s which generated a loss of 87 million financial net reached minus 38 million which was an improvement compared to minus 76 last year and that was related to of course that we're now sitting with a net cash position so higher interest rates cost but it's offset by interest income tax rate for the quarter amounted to 25 percent which is slightly below what we have communicated of 26 for the full year Here we will make an update and I will come back to that when we're talking about the outlook that we're now guiding for an underlying tax rate for continuing operation of 25%. Moving on, earnings per share for continuing operation excluding items affecting comparability, up 20% from 3.4 to 4.08. For the group as a whole, you can see that we are down But that is due to that we have a divested wheel system and the printing blankets that was included in last year's number with 1.68. Moving on to page 18 and the cash flow. And as you can see here, we have a cash flow last year of 1,678,000,000. This year, 1,321,000,000. Good continued improvement in EBITDA. little bit less positive from working capital but as you can see on the table on the right side it's still positive 300 million improvements from working capital in the quarter and then as peter was also mentioned we are investing more and that you can see when you're looking at the net capex and leasing together so all all in all a good cash flow for the fourth quarter looking in to page 19 the cash conversion A good cash conversion of 92% for the full year compared to 74% in 2022. Moving on, H20, gearing and leverage development. We are now sitting in the net cash position and the reported debt ratio becomes negative and amounts to minus six compared to 56 a year ago. And the net cash in relation to EBITDA was minus 0.2 compared to 2.4 a year ago. And we have also continued to buy back shares during the quarter of 1,078,000,000. Moving on to page 21, return on capital employed amounted to 12.9 compared to 15.9 a year ago. And the capital employed has been impacted by acquisitions with lower returns. And then finally, moving on to page 22 the financial guidelines for 2024 we estimate capex to be 1.6 which is in line what we saw during 2023 restructuring cost of 250 which is a reduction of 50 percent compared to what you saw here during 2023 internables in line with the numbers we reported 2023 So we estimate that to be around 500 million SEK. And as I said, underlying tax rate, 25% compared to previously communicated 26%. By that, I would like to hand back the microphone to you, Peter.

Great, Fredrik, thanks a lot. The agenda page again, summary and outlook, turning to page 24. Sorting into the year, as I said, we guided very much in line with our expectations. uh ebit are up slightly more than the sales is up which is then pushing the module a bit up making us the strongest q4 so far for us in terms of margin um also overall good cash management although down from a year ago we are happy with most of the items in in this respect and also with satisfaction we know that we are building a better position on seals uh as I said, targeting the Semicon industry. So a good quarter for us, solid quarter, moving in the right direction, of course, creating a foundation to continue to build a better Trelleborg, a stronger Trelleborg. Good balance sheet as well, as Vicky has to comment on that, which is offering opportunities both for continued high organic capex, but of course also to continue to scout for interesting acquisitions for us. So all in all, very solid end to the year and of course a very active year for Trelleborg. I mean, just to use this occasion also to comment on the full year performance. Of course, we have changed the group and we feel confident that we're going to continue to improve and we will continue to prove that we are building a better Trelleborg. and turning to page 25 opening up just a few comments on the running quarter i mean we we say overall the demand is expected to be on par with the fourth quarter we don't of course there is always some some ups and downs behind it as i comment on geographies europe basically continue in the same way we see a stronger asia driven by an improvement in china might some slightly more negative view on on on americas where we see some some pushes certain areas going down but overall once again well balanced and everything moving forward in terms of market segments i mean we we see continued strong demand automotive we see continued strong demand lng and let's say marine construction we continue also to see good development in aerospace solid development overall in also medical and healthcare and then where we have some more concerns we don't see any changes in in the construction so residential construction segments continue to be not getting worse but but but not really improving either and then we we are less than carefully noticing the the development in kind of core industrial industrial machinery and and that kind of related segments where we have some concerns but we think that is more balanced by good development in other areas. So once again, overall, of course, there is always a mix behind, but overall, solid development going forward. And then, of course, we know geopolitical situation. I mean, we're all painfully aware of the war going on in Ukraine and Russia and the development in the Middle East. Who knows what that's going to be? So we always add that as well as... as a comment but overall we feel we have good control of the operations and we are ready to act if needed. So that is kind of the way we look at the running business. So turning to page 26 agenda point Q&A and then quickly moving over to the final page in our presentation and opening up for questions. So please go ahead.

If you wish to ask a question, please dial pound key five on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial pound key six on your telephone keypad. The next question comes from class Bergelein from city. Please go ahead.

Yes, hi, Peter and Frederick, class at Citi. So the first one is on industrial solutions. It's a solid margin again up from 14% last year. I had expected the mix impact in marine, the pun and effect to level off a bit here. So I'm trying to understand a bit more, Peter, what is underlying execution versus mix? You have the factory closures, the self-help. I might have asked this before, but it would be great to get a sense for the savings number running through the P&L. I'll start here.

Yeah, I mean, it's a mix of impact, of course. But overall, we still have some minor benefits from the Panama, but also other big projects related to LNG and some others. So marine is definitely continue to kind of bring benefits. But I mean, we don't really want to highlight. I mean, that is an overall development. We have some good development also in rail, for instance, in the quarter, good deliveries in rails. um continued good automotive demands so it's not really we cannot pinpoint something really specific it's more an overall good development overall good management so this is a movement in the right direction as we had have had for for many many years of course the restructurings that we've been doing and that we've been spending more money as we already comment on restructuring and that is also creating benefits so But you're going to see. I mean, our guidance remains. I mean, this is a long-term improvement, moving in the right direction. There could be some ups and downs in individual quarters. But overall, it's a long-term, as we say, climbing the value ladder in order to bring a more profitable business and a better business. So it's difficult really to kind of pinpoint something very specific on why this is happening.

I'm just trying to sort of, it feels like the underlying execution was a bit stronger and it was more driven sort of more by the Panem effect early in the year. And I guess that is what I'm trying to get to.

I mean, once again, it's not a real change. It's a hard work improvement in a lot of dimensions. And then, of course, you could individually have a few tens of a patented points giving on individual modules. But but. uh but the panama is not kind of it is bringing some benefits but i mean the 0.1 percent on the margin or 0.2 or something like that but i mean it's not really any major major impact if you look at this individual quarter it's good good execution benefits from from previous restructuring and then also some good project deliveries in the in the quarter some link to lng some link to rail automotive performing so it's a solid quarter but once again solid quarter with improvements in the multiple of dimensions

That's great to hear. My second one is on the guidance. You're guiding for flat demand. I think you mean that there should be sort of flattish growth again. But if I take into account easier comps, the de-stocking is leveling off, construction is bottoming, I thought it could be a little bit more growth than that. Is it any end market geography where you still see sort of big decline in volumes? You talked about North America, Peter, now a bit weaker. seems to be in peace. Yeah, so we can sort of understand that a bit better.

No, no, I mean, I agree. But where we are a little bit more cautious is the core industrial demand where we see some continued, I mean, prolonged focus on inventory reduction. We have some in the medical and healthcare, which is also some focus on inventory reduction. I mean, I should say the order intake is fairly solid. I mean, we have order intake well in line with sales in the quarter, but we are little bit cautious on on on the way we still see some some of our customers being a bit more cautious ordering a bit less and then also we are getting we and our suppliers is getting our kind of supply chain better in order which means that also customers is getting also more focused and trusting our deliveries and our kind of sub suppliers deliveries so i think this is a A little bit cautious maybe, but this is the way we look at it, Claes. I don't want to say that we understated it, but this is simply what we believe. But of course, it's a little bit on the cautious side if you look purely on the order intake and the kind of expectations. But we do believe that this is what's going to happen. All good. Thank you.

The next question comes from Eric Gorang from SEB. Please go ahead.

Thank you. I have three questions. First one on profitability in MRP. Could you shed some light on where is that as we exit 2023? It would be helpful to get a sense of how it's developing. Second question, the the stocking you talked about in healthcare medical, is there sort of specific segments across your business or in specific areas, given it's quite diverse? And then the third question on CapEx, is it still, I think you talked about clearly lower CapEx by 2025. Is that still the base case? Thank you.

Yeah, so talk about MRP. MRP is being integrated and it's, let's say, basically developing according to plans. So we are not really tracking that individually anymore in the same way with the same kind of cost base. But overall development in line with kind of expectations. We, of course, also dare hurt a little bit by the residential construction. We have some water segments, but also we have some other segments performing better. So overall, of course, Performance is changing, but overall, once again, development in line with expectations. We still have high, let's say, degree of certainty that we're going to bring the benefits. We are quoting new projects. We are getting into new segments. But I mean, we also know that the sell-in period for a new seal or a new sealing solution is not that it's happening overnight. So we have a few quotes. I mean, it takes generally two or three years to get into a new segment or a new solution. We are quoting and we think we are moving in the right direction. We're also now touching a little bit, although this is not the greatest synergies with this acquisition, but we also now start to move around a little bit more actively among the manufacturing footprint and integrating the MRP sites with the call it the legacy Trelleborg sites, and also starting to clean a few of the sites to get them more focused. I have had more mixed sites in MRP, while Trelleborg has had more specialized sites. So there is still some integration work ongoing, but overall, once again, development rather much in line with our expectations.

To talk about the medical... If I could just follow up there, Peter, on... the dilutive impact from this acquisition. Are we at the trough there now in that?

We're going to have negative impacts also in 2024 from the adding. It's getting closer to put it like that, but we are not yet through that tunnel. We have guided for that the run rate at the end of 2025, which is still the same guidance. So we're going to continue to kind of suffer from that in terms of margin, but we are hopefully going to start to see some organic benefits from this new orders then they will start to kick in here during this year although the bigger that will increase in 24 and 25 because it is rather long selling in periods for a new ceiling solution it's not that they're changing overnight i mean it has to be new new solutions new new kind of versions before we get in so that that's the way so it's very i mean we feel at least it is very much in line with what we have been saying all along there are no changes on that one okay And then on the medical, I mean, if you say highlight, it's all across, but highlight biopharma still suffers with the production of vaccines and that kind of stuff, where there have been a lot of overstocking that continue to suffer. We still find the segment very interesting, and we see the overall medical industry moving in that direction to more kind of active substances. We see a big benefit and that's also where they are kind of more replacing and then there is more more interesting let's say sub-segments in the biopharma but that is suffering and we also see on some equipment makers it's not it cannot highlight any specific segment besides the biopharma it's basically all across but once again the order intake is good and we are kind of gaining ground and we are moving forward and we still see big possibilities in in the medical and healthcare segment and apex i mean i mean like easily we still keep the same guidance and we have some very specific big projects in 25 as well i mean so we say uh half of the capex is probably linked to uh yeah handful or slightly more than a handful of of uh capexes and that is why we feel very confident that it will go down dramatically in 2025 as these projects are ending.

Very good. Thanks.

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

Perfect, thank you. My first question is on seeding solutions and coming back to the operational leverage, maybe specifically in the quarter. Looking at your sales development in the quarter, it was up by some 250 million, but EBITDA was largely flat despite the positive currency impact. So some contribution from acquisitions and probably also lower kind of integration costs for MRP. So can you just explain what happened in the quarter and then maybe a follow-up? ending at 21% EBITDA margin for 2023. What do you expect will happen to profitability in 2024, assuming flat or somewhat lower markets and the fact that you're still investing in the business? Thanks.

I mean, as we said, Agnieszka, that we have also invested in organization for future growth. So, of course, that has an impact on the margin. We are continuing to investing into the speedboat segments with aerospace, health and medical and Semicon and automation and some other speedboat segments. So that is impacting the margin negatively. And then, of course, also it's a variation between the different segments. Of course, there is some factories where you get a little bit of inefficiency when you get in with a little bit lower volume and some are running pool. So of course that is also impacting the margin in in ceiling solution. Overall, I mean we are still sticking to our earlier communication that we will be back here in 2025 so we will start to see a gradual improvement over the coming two years and then we have said in the run rate when we are leaving 2025 we should be back that we were before the large acquisition.

I mean in a way we're keeping our guidance we don't see any kind of deviations from our plan we are moving in the direction we want and of course I mean as you highlighted there is also Say this extra sales is also some price elements in that compensating for inflation. So it's not really that we have bigger volumes to adopt. We actually lower volumes probably in the quarter compared to a year ago. So overall, well managed. We feel, then of course you can have your views on it, but we feel fairly satisfied with the development.

And just maybe follow up on that, just looking into 2024 on the potential positive drivers for your earnings in ceiling. Can you tell us whether the investments in the business will be lower or higher than in 2023? And also, what do you expect when it comes to kind of underlying profitability at MRP or other acquisitions?

We see an improvement. I don't want to give any figure guidance, but we see an improvement in 24 in terms of margin. That is the way we look at it at the moment. And we believe it's going to move in the right direction. Then exactly how much? I don't really want to give any hints on that. But we feel that we are through that and we're starting to get benefits from the investment we're doing. We're starting once again, I say, to get the first kind of sales synergies coming in from MRP. We do also believe at the moment that we will see an improvement in China, which you probably are aware is kind of a positive mix for us. So we see a few positives. The uncertainties, of course, linked to the volumes and especially this, what's called core industrial, how that will develop. But we feel confident that once again, medical healthcare will continue, aerospace will continue, automotive looking good, at least there for the first part of the year. We see now with the Semicon entrance coming in. We have some positives, while the volumes are the uncertainty. But I mean, assuming that the volume stays relatively flat, we feel confident that you're going to see a modern improvement in seeding solutions.

Perfect, thank you. And then the second question, industrial solution, which finished the year at strong margin with 15.6% up by almost one percentage point, which is probably, it is more than what you guided for a yearly improvement. Do you think this is kind of representative level for industrial solutions or were there any special benefits in 2023 that will fade away in 2024?

I think it's slightly better. Once again, I mean, we got good benefits in Q3 and also slightly, as we said here in Q4 from this extraordinary order from Panama, we've kicked in with high margin and high Yeah, high benefit. So we still guide for half a percentage point up a year. So, of course, it's been slightly over performance this year. And you should not really see if we can keep that kind of flattish going into next year, we should be happy. So that is not really where we see, let's say, another improvement in the same dimension as we saw this year. But that is, I mean, what we want to say about that. Our overall guidance still remains. half a percentage point up per year and as you say some over performance this year.

Perfect, thank you Peter.

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

Thank you very much. could we talk a little bit about the organic growth if I look underlying it seems to me that when I look at the different growth components underlying organic growth was better than expected and if I'm reading you guys right there was some price contribution here would be possible to maybe discuss a little bit on how much price contribution you had and how much underlying volumes were developing and also if there's some and how much of this we should expect for the remainder of the year. And I'm maybe talking more ceiling solutions here, but happy if you could discuss industrial. Thanks.

I mean, it's a mixed issue, but overall, of course, the volume is down. I mean, then we talk about a few percentage points down. I mean, we don't really want to comment whether that is two, three, or four, but I mean, that is really what we talk about. So there is positive, and then the similar positive on the price. I mean, that is what we're talking about. So it's really overall the volumes are down. And I mean, the reason for us for providing kind of organic positive growth, positive sales growth is due to, let's say, pricing actions. So that is why we are also kind of satisfied, although we with kind of lower overall volumes, lower capacity utilization of factories, we managed to to create kind of an uptick on the margin. So that is why we are overall satisfied and we have been working throughout the year. We have already kind of initiated a lot of what we call restructuring, downsizing. I mean, we managed to kickstart that already, let's say in Q2 or something. So we are starting to see the benefits and that is really what is saving us in this one. And of course, so that is the way we look at it. So I don't really want to Of course, we have internal, but this gets very complicated if we are to kind of go through the different segments. Overall, a few percentage points down on volume being compensated by a few percentage points up on price. Fair enough.

And is it fair to assume that a large part of the price is a spillover, which means that price, year-on-year price contribution should be tougher in Q3 or Q4, or Or are you implementing price increases as of January?

At the moment, it is lower. There is some price rollover if you look at the full year, let's say, impact. But I mean, it's not really any major. But it will be a slight positive, both in terms of pricing actions, but also in terms of these ongoing restructurings that's going to kick in and improve going forward as well. But I mean, we are not. That is normal. I mean, that is something that we're working with all the time. It's nothing specific. And of course, we're doing that in order to facilitate. We do expect, I mean, throughout the next year, we do expect not automotive volumes to continue as high as they are. We still, with the highlight before, we don't expect any kind of improvement in the residential construction. And we are a little bit cautious also in this core industrial hydraulics, pneumatics and construction equipment and agricultural equipment and that kind of stuff. So we are, of course, continuing to watch our costs very carefully and we are continuing to adjust to be able to flex when needed. So it's, sorry, sorry for a lengthy, let's say, lengthy reply without any really content. But that is the way we're working with a lot of dimensions and a lot of actions in a variety of actions. I mean, that is also the way we feel that we are less cyclical overall. We have a better performance. We have a better balance. and we are able to maneuver across this slightly more challenging environment excellent thank you very much the next question comes from douglas lindell from dnb markets please go ahead hello peter and frederick thanks for taking my questions i just wanted to circle back on the pricing topic there so based on your answer we should continue uh or we should expect continued price hikes uh during 2024 that's my first question I have probably I don't I mean of course in certain areas we continue to push the pricing but what I said is more the price rollover because I've been let's say increasing pricing throughout throughout the 23 and now that's going to be a rollover into 24 but so that is the way way we look at it i mean of course price hikes is always on the agenda but we don't expect price hikes to be at all on the same same level as throughout 23. so so that is not going to be a big big thing as we look at today but i mean that is a constant adjustment and of course we're looking at inflation we are entering into salary discussions and raw materials slightly down at the moment of course which i trust you're aware so that is also something that we need to continue to watch but we don't see an increasing inflationary pressure going into 24 and then means also that the push for price increase is going to be less but once again they're going to be certain pockets where we're going to let's say increase pricing but once again it's not going to be a major impact in in 24 as we see it here today okay fair enough thanks

already touched upon my second question which was basically on the cost base as you view it now heading into 2024 raw materials coming down but maybe you could elaborate a bit more on your other cost transportation issues we're seeing right now but all of that but if you say i mean so far as you say on this suez canal and all of that we have not really seen an impact there is some of our customers that been

I think that there will be problems with that, but I mean, we have not really seen it and we cannot kind of isolate any problems with this at the moment. Overall, freight costs is also, as the volumes goes down, this also seems to be stable. We don't see any problematics there. So it's inflation outside of salary. Salary, we do expect, let's say, above average increase. in in 24 average if you look on the last few years but but i mean not the same push as we saw in 23 so overall inflationary pressure is going to be less but but that is something which you say we do that weekly we're running on that weekly so it might change but as we see it at the moment it's not really a major impact for us okay thanks and we we touched upon the topic previously as well but

more in broader terms the de-stocking that we've seen now for a few quarters in general maybe looking at the sort of your broad cyclical exposure where would you say that we are there now?

I mean I should be let's say open or honest enough to say that we did not expect this to continue it's been a slightly higher de-stocking going into in Q4 than we expected three months ago if I'm putting like that and that is also where a little bit cautious going forward we I do believe that's going to be. I mean, we saw on some of the customers having a bit longer Christmas breaks. And we also see now in China, for instance, some of the longer New Year breaks. Of course, we do see that some of these capital goods industries continue to distort. But we see that we've been undersupplying kind of their raw demand for a few quarters now. And I mean, it can continue in that way. So at some time it needs to end. But Once again, we do believe sitting here today, we do believe we're going to have a negative impact from that also in Q1. But it should end soon.

Okay, fair enough. That's a good answer. And my final question is on the topic of M&A, you mentioned China here several times before, and we know that it's positive for your profitability. Is that still on top of your sort of

I mean, we're still working on, as we said, the speed boats that we call it, aerospace, medical and healthcare is high on the agenda. We see good possibilities in medical and healthcare to widen both our geographical exposure, but also our segment exposure and become a complete supplier. That market is still very fragmented. Moving into the Semicon area now, we did this Korean acquisition. Of course, there is more semiconductors markets in the world, which is of interest for us. So that is still working on and we're still keeping, we say aerospace, medical healthcare, Semicon, and also some pockets of consolidation in industrial solutions as well. I mean, although it's going to be smaller, if you do an acquisitions in industrial solutions, probably be on the smaller side, but it's going to be strengthening already strong positions. So we see, yeah, solid, let's say, solid possibilities for acquisitions. And I mean, valuation has gone down as well. You have to comment on that. So of course, compared to a year ago or something, we see, we can say, Fredrik, substantially lower valuations in a few areas, which makes it more attractive. And since we, in more or less all acquisitions, have also good synergies, so that makes sometimes these acquisition multiples very attractive. if you look at the kind of lower valuations in combination with our synergies. And that is why also, once again, I mean, I don't surprise, but in industrial solutions, some of these acquisitions we're looking there is actually looking, becoming fairly attractive. So we continue to scout that and we continue to watch it carefully. We don't see any movement, if I may say, from private equity players yet. I mean, there is not really any, there are still very, So the processes we're running is mainly only, I should say, again, strategics. We don't really see any private equity players yet. And I mean, as we are working mainly on acquisitions with private individuals and if they decide to sell, they want to sell now. So that is a good, we feel it's a good timing to continue to scout for good acquisitions.

Okay. Thank you very much for answering my questions.

The next question comes from Timothy Lee from Barclays. Please go ahead.

Hi. Thanks for taking my questions. first question about your guidance again so you're guiding like a stable demand environment in the next quarter but can you give us a little bit more color the relative performance of the two segments it seems like in fourth quarter we definitely see a little bit better progress in terms of sales improvement in serious solutions so what do you see in the first quarter developments specifically for the

Tim, our guidance is probably we don't see any difference between ceiling solutions and industrial solutions. It's the same for both. And I mean, there is kind of ups and downs all across. But overall, we believe, as we see in this quarter, of course, we can discuss one or two percentage points up and down, but that's going to continue like that. But overall, we don't see any major difference between the the kind of sales development in the two business areas.

Understood, understood. The second question is about China. So you mentioned it seems to be improving in terms of orders. Can you give us a bit of color about what end markets in China you're seeing better improvement so far? and whether you see the overall improvement is a like a seasonal impact or like a real improvement in the underlying demand because like for the opposite is a peak season in China in general in many of the industries so I just want to have a bit more about the momentum in China

In China, we can say we see an overall, let's say, development and positive development basically in all sub-segments. I mean, we see automotive continuing good way, engineering or machinery, which has been kind of probably the more softer ones, whether it's Hanis, Omlion and all of those has been a little bit careful. We see they're getting back and placing orders. We also see infrastructure investment continuing in tunnels and harbors and all of that. So when I don't want to... We see overall a general better development in China. It's been a very soft market. Customers were very cautious. We see that they're starting to believe in the future. We have had very short water cycles. They start to give new longer-term orders. So that is we read it our reading is that that is better kind of sentiment coming and it's better people starts to believe again because it's been the kind of extraordinary low if i may say so of course if and that is why we need to watch a little bit more what's going to happen here beyond chinese new year and see see what that is coming up now we're only a week away from that one and we noticed that some of the factories has already closed i mean they have a longer breaks than usual uh but they have been placing orders to to uh for us to execute here let's say after after the um year of the dragon has started so then we will get into and we will um we look more positive in general i don't really are looking at frederick but i mean i don't think we want to highlight anything is more a general improvement all across.

I agree with you Peter.

Yes, very clear. Thank you.

There are no more questions at this time, so I hand the conference back to the speakers for any closing comments.

Great, thanks. Thanks for interest in Trelleborg and sorry for the mishap again here in the beginning. We will make sure it doesn't happen again. But that's the way it is sometimes. I mean, thanks for following Trelleborg as we are now leaving this solid quarter and now focus on the future again. and developing and creating a better Trelleborg less cyclical more exposed to high growth segments and that is a development that will continue and hopefully we will continue to present an even better Trelleborg going forward and then as usual if you have any follow-up questions I'm available Fredrik is available and Christopher is available so hope to see you soon and do take care and speak to you soon