Trelleborg AB (publ)

Welcome to the Trelleborg Q1 2024 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 pound 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. And welcome again to all of you to this presentation of the Trelleborg Interim Report for the first quarter of 2024. As we already stated, speaking, Peter Nilsson, President and CEO of Trelleborg, and also joining me on the call is Fredrik Nilsson, who is the CFO, who will guide us through more the financial part of the presentation. And also on the call is Kristoffer Sjögren, our Head of Investor Relations, who is also able to support us if there are any questions which needs his support. So using the presentation that we have on our web since a few hours turning to the first page which is an only saying Trelleborg interim report turning to page two which is the agenda slide as usually we lifted some highlights from my side and also some comments on the business areas, which is going to be three this time, for the first time since sometime. Then financials, Fredrik is going to guide you through this, and then we're finishing up with the summary and some comments on the outlook for the running quarter, and then summing up with the Q&A. So then turning to page three, highlights. We have, let's say, the heading, improved margin despite slightly lower sales. Sales came in at 8.2 billion, which is, let's say, down by 5% compared to a year ago, which is then reflected as 5% down, reflected organic sales down by minus 3. And we also have a negative structural thing here of minus 2%, which then gets us to this minus 5. Currency basically no impact in this quarter, first time since a few quarters. and then of course we note looking at organic states either holiday as all of you is aware has been um was in um in in april last year in march this year so that is impacted organic sales by close to two percent in the quarter and primarily then impacting our ceiling solutions activity get back and comment on that eb day ending up ebit a ending up at 14.90 which is then the corresponding margin of slightly north of 18%. Still running restructuring in order to continuously improve our structure so that we have the items affecting comparatively in the quarter of 55 million. Also relatively strong cash flow in this quarter. As usual, seasonality means that cash flow in the first quarter always a little bit weaker than the other quarters in the year. But if you compare to a year ago, this is a strong cash flow for a Q1. We chose that we've been managing our working capital good, although at least we've been muted sales performance. But Fredrik will comment on that as well. And as already told, we are for the first time, let's say, also presenting individually Trelleborg Medical Solutions. Get back and comment on that. Soft start for medical solutions. in a challenging market but also i will get back and comment on that when we speak about that business area we're also happy to to assign the agreement to acquire a baron group which is going to be a game changer for medical solutions when we get that into the books also to be noted i mean beyond the end of the quarter we finalized the earlier announced m e acquisition in korea which is then strengthening us substantially in seals for the semiconductor industry and we also have signed an agreement to acquire a bp tech group as it's called or more use name is called boldan which is then a pipe repair business based in finland but selling globally and so this is kind of the highlights of the quarter Moving from that over to page four to comment a little bit on organic sales. As you can see, it varies quite a lot across the globe. Starting with the positives, we have positive growth in Asia, driven by strong development in China, where we see a good bounce back, a continued good bounce back, good order intake and overall good development, but once again, driven primarily by China. Europe flattish with a kind of a mixed development between countries and between markets, but summing up to no growth at all in the quarter. And then we have a negative, substantial negative growth in North America, driven by some inventory focus, but also some kind of challenging markets in mainly the construction of highway related activities, and which is primarily linked to our hydraulic and pneumatic sales, which is then used in areas like construction equipment, agriculture, and also partly mining. So that is kind of the explanation of this fairly heavy negative in North America. Turning back to page five, uh business areas quickly to page six and comment on industrial solutions uh heading improved profitability despite lower sales organic sales down by three percent mna supporting by one percent uh should be noted that this is kind of in in um relation to a fairly strong quarter a year ago it's basically the same development that we've seen the last few quarters here where we see residential construction and certain industrial segments. The industrial segments, which is mainly exposed to distribution, continue to be soft. We see that the overall kind of product-related sales in the Android solutions continue to perform well. And we especially note that the liquid natural gas customers is increasing orders and sales substantially, which is kind of assisting us. And also we note that automotive sales still growing in the quarter. I mean, we are uh watching this carefully but at the moment we still see good automotive sales in this business area and overall well managed i mean we are continue to benefit from structural improvements good good let's say price management and also positive sales meets which is then pushing the margin to high levels for this business area and also as already commented we also continue to build on our business for pipe repair by this acquisition in Bolden and that continued as a continued kind of prioritized area for us where we hopefully can continue to build this even better position in this attractive and rapidly growing segment of pipe repair or aligning of water pipes. Turning to page seven. and commenting on the new business area medical solutions a fairly muted start impacted by inventory adjustments in the industry we have some heavy as a bigger customers we just let's say done heavy inventory reductions in the quarter the underlying demand is still okay and that is why we although we know that this is a soft organic stage and we're also guiding for a soft organic sales in In next quarter, in the running quarter, we still feel that the underlying demand is good and that overall we will see a fairly flattish development actually for the full year in medical solution in relation to organic sales development. EBIT actually mix is improving and we are therefore able to, although on this fairly dramatic sales drop, we still managed to deliver an EBIT 8. in line with last year and actually with an improved margin. And we also continue to tell about Barron Group, which we believe will be, let's say, closed. This deal will be closed within the running quarter. We don't know exactly when, but within the running quarter, we expect that to be closed. And when that gets in, we know that we will have synergies and we'll also have a substantially better overall performance of medical solutions. We are also going to continue to develop this new business area structure and we're adding resources in order to be able to approach all interesting customers and all interesting segments. And this is also something that we also asked before. We want to note that we're running with a slightly higher overall cost level in the business areas in order to position ourselves in the best possible way for the future. Turning to page eight, commenting on ceiling solutions, organic sales as a minus two, which is, let's say, lion's share impacted by the placement of Easter this year. So let's say if we allow ourselves to adjust for that, as you know, it's a flatty sales in the quarter. sales to general industry is the one which is being pushed down where we then let's say in that is seeing or being told by our customers that this is mainly related to continued inventory focus and not really to a lower overall demand automotive demand in this business area flat dish and then really no change from a year ago and we know to continue very strong sales development in aerospace food order intake and also good sales development in the quarter uh ebitda in margin down uh primarily related to earlier acquisitions still being integrated and in in a good way but but the benefits will kick in as we said before here during later this year and also going into 25 but of course also impacted by this slightly lower volumes as we are on top of this also focusing our inventory we are not let's say uh over producing we're actually more or less underproducing in the quarter in order to make sure that we protect the cash flow and that we're not, let's say, building inventory in any way. Also in this area, like in medical, we are continuing to invest in some what we call fast-growing market segments like semiconductor aerospace, where we are still running ahead a little bit with our resources in relation to the sales, but where we see that there's going to be a positive impact on the more medium, long-term for the business area. So this is really what we're going to say about the business areas at this stage and moving on then a few comments on our sustainability KPIs with the focus on carbon dioxide continue to develop very favourable for us. We are successful in lowering our emissions as you can see on the slide and especially also if you are primarily driven if you turn to page 10 with the continued increase in a share of renewable and fossil-free electricity. We feel that we are very well on the way of developing on our targets in relation to CO2, but more of that in the future. Turning then to page 11 and the agenda slide and the financials, and then leaving to Fredrik to guide you through with the start of page 12.

Thank you, Peter. Starting with the sales development for the quarter, As Peter mentioned, organic sales dropped by 3% in the first quarter. Industrial solution declined 3%. Medical solution, 11%. And ceiling solution was down 2%. And then, as you can see on the slide, report net sales decreased by 5%. And there's a 2% minus from structure, which is mainly related to the divested business in Czech Republic during the autumn 2023. Moving on to page 13. showing the historical organic growth. As you can see here, the first quarter was below on our sales growth target, which is 8% over a business cycle. Moving on, page 14, showing the quarterly sales and rolling 12 months for continuing operation. The sales in the quarter reached 8.2 billion, and at the rolling 12 months, it reached 33.8 billion tick. Moving on, Page 15, looking at the EBIT-A and the EBIT-A margin development. The EBIT-A, excluding items affecting comparability, decreased by 2% to 1 billion 490 with profit growth in industrial solution, a flat development in medical solutions, while it declined in ceiling solution. In the result, there was a small translation impact, which was negative of 14 million compared to the corresponding quarter last year. Margin-wise, up 0.6 percentage points from 17.5 to 18.1. And that is despite that we initially have some acquisitions with lower margin. And that's also, as Peter was mentioning, we have invested in the organization on some fast-growing market segments. Moving on, page 16, looking at the rolling 12 months EBITDA. It amounted to 5,964,000,000 with a margin of 17.6%. That implies that we have had an EBIT A growth of 7% during the last 12 months. Going into some more details on page 17 in the income statement. We have items affecting comparability in the quarter of 55,000,000, which is entirely relating to restructuring costs due to that we are adjusting our cost base. I would also like to highlight our financial net that is down from 165 million negative to minus 20 million, and that is mainly due to that we are now in a net cash position, but also that in the corresponding period last year, we have a short-term loan for financing the Minnesota rubber and plastic acquisitions that was repaid during the second quarter in 2023 when we received the proceeds from the wheel divestment. Tax rate for the quarter, 25%, which is fully in line with earlier guidance. Moving on, page 18, looking at earnings per share, a strong improvement of 16% for earnings per share, excluding items affecting comparability, and that is due to the improved financial net, but also due to the ongoing share buyback program that we have fewer shares when we calculate earnings per share. If we look for the total group, you can see it's down 24%, but that is explained with the discontinued operation related to wheel system and printing blankets that was divested in May 2023. And that added, the discontinued operations added 1.81 SEC to the EPS. Page 19, cash flow. A good improvement compared to 2023. As you can see, working capital, an improvement of 150 million, and also slightly less capex in the quarter. Looking at page 20, the cash conversion remains at a really good level and reached 95% on a rolling 12-month basis. Looking at gearing and leverage, and I would like to highlight here that as we are still in a net cash position, the reported debt ratio became negative and amount to minus two. And if you look at net debt to net cash in relation to EBITDA, it was minus 0.1. And we have also brought back own shares of 1,085,000,000 in the first quarter. Return on capital employed on page 22, excluded items affecting comparability, was 12.7 compared to 14.9 a year ago, and that is due to the acquisitions with initially lower returns and also the small lower profit that we have this year. Looking at page 23, some guidance for the full year 2024, They are unchanged compared to what was presented in February. So capex still 1.6 restructuring cost of 250 million for the full year. Amortization returnables 500 and the underlying tax rate remained unchanged of 25%. So by that, I would like to hand back the microphone to you, Peter.

Thank you. And turning to page 24 agenda slide again. and quickly to page 25 to give you a summary again i mean improved margin despite slightly lower sales and we feel the quarter is well managed i mean we we still had these negative organic sales primarily driven by by inventory reductions and not really uh let's say a firm indication on any kind of lower demand we still as usual we have a mixed picture i mean we see a few segments doing very well with already mentioned lng oil and gas aerospace also have semiconductors performing well and we do also see kind of a good underlying demand in the medical area although we are heavily impacted by by by inventory focus or for some of our key customers overall solid quarter we feel uh impacted of course by the easter holiday already commented a few few times uh strong cash flow in the quarter let's say uh in relation to the season i mean we we feel um satisfied with the management of working capital well down by our units to uh to manage this in the quarter and we also noted satisfaction that we are uh adding to our medical business by this Barron Group. Now we are eagerly looking forward to close that deal and integrate it and get the synergies that we identified in order to push and improve medical solutions substantially following the disintegration. And we also see these smaller bolt-ons, but very interesting needless to say on M&E in Korea, which is offering a new platform for us in Asia. for sales into the semiconductor manufacturing industry and we also noted satisfaction another interesting and very nice add-on for us related to the pipe repair of the market for water and wastewater infrastructure. So I mean a good quarter a lot of things moving in the right way and we continue to have our focus on delivering on our margin target 20% plus and we feel that this quarter is a step in the right direction. I mean, we are able to increase the margin, although we have a decreasing organic sales and we feel when this is normalized that we see, let's say, a little bit of growth potentially, then we feel confident that this extra growth will deliver a good leverage and we will then get closer to our target of 20% plus EBITDA. Turning them to page 26 and commenting about outlook, we don't really see any changes. I mean, order book is solid in a way. We don't see a decline in the order book. We see overall good development, but we are, of course, fully aware of this uncertainty where we see, unfortunately, around the world with the continued disaster in Ukraine and also with this what should I say, uncertainty in the Middle East, which of course could impact us. And we also see a continued focus on inventory reduction, which is for some of our customer segments. But with that said, we still have, once again, a solid order intake, which does not really indicate any kind of dramatic changes. But once again, this outlook is, of course, let's say, linked a little bit to Bigger uncertainty than usual, but overall, looking into what we know from before and what we see in our businesses, we feel that it's going to be equal development in Q2, as we said in Q1. And with that, turning to page 27 and quickly to page 28 and opening up for a Q&A session. So please, please go ahead.

If you wish to ask a question, please dial £5 on your telephone keypad to enter the queue. If you wish to withdraw your question, please dial £6 on your telephone keypad. The next question comes from Eric Gorang from SEB. Please go ahead.

Thank you. I have a couple of questions. First, on the demand side for the second quarter here, 2% is on track from the Easter. You talked about a generally stable demand trend, and then you have this stocking element in medical, which is a bit uncertain about the near end curve. But it must have been an alternative to guide for sort of higher growth, given the swing in seasonality and no other real sort of underlying factor changing much. That's fair to assume.

Yeah, and a quick comment on that. I mean, we are, of course, if you look solely at order book, it will be better in Q2, but we also note that there is uncertainty and we want to be a little bit more on the capital side, if you may say. I mean, we are still trying to make sure that we don't overproduce and that we don't really believe in a brighter future than we see. But of course, I mean, you are... right in that way that i mean the easter effect will be positive in q2 and it was negative in q1 so you could i could agree with you that we're a little bit on the careful side but but nevertheless i think when we put everything in the bag and we look at it and then we believe this is a fair um a fair comment and a fair assumption that we're going to see similar development in in q2 as we see as we saw in in q1 okay thanks the two I mean the highlight on this also Eric I mean the order book is solid I mean the unknown is how much continued inventory focus we have but we still see that some of our fully core industrial customers is kind of trying to get their inventory down although they continue to place orders so this is the kind of development we've seen for a few quarters, and I think I commented to you before as well. I mean, we are a little bit surprised about that. And that is nothing that is common. So if that kind of trend is changing, then of course, we will see more positive sales development.

Okay, understood. And then two questions on profitability. First one in medical, you say when Baron comes in, it will do 20% EBITDA. I guess that implies Baron is doing 30% or so, which is a very high level. Any reason to feel that's not the sustainable level for them? And what's the main factor putting them at such a high margin? And then second on industrial, you've been a bit, They've indicated towards expectations of a more sideways margin development for industrial after a really strong 2023. Now, this first quarter, we're up again. Have you been too cautious on mix or price here? What's the delta?

Thank you. First of all, medical, I mean, we fully understand that there is a big difference between the 14 in this quarter and the 20 that we guided before. We feel confident, we have an operating plan, we know what we want to do with Baron and we know what benefits we will get with Baron. So we fully understand that the proof is in the pudding there and we have that to deliver. But we still want to comment on the long-term long term the medium term even short term target here is to get medical after 20 and that is what we are still aiming for and i mean i understand that you are in doubt but that is something that we are working for and something that we believe in and we need to prove that that is happening with industrial it was a little bit positive mix in the quarter we said we had some project sales especially related to to liquid natural gas segments but also a little bit extra volumes in automotive which is created some some extra although not on the most profitable part of the business area but nevertheless we benefited from that so there is a little bit negative mix in in the current current and the running quarter in the secure one and we do not fully expect that to to continue in the same way but but we still feel that overall the business area is moving in the right direction i think the overall guidance still is still valid that we believe it to to increase by by half a percentage point per year and but we also say a comment on that it will vary let's say in between the quarters and this was probably a little bit on the high side in this quarter and we need of course we will try to continue to deliver on the same way but i mean it was

little bit on the high side i don't know frederick if you want to supplement anything on this no but i think we also flagged already last year that we have some project business both in q3 q2 and q3 last year with a little bit improved the margin a little bit so i would say we have a little bit tougher comps as well going into q2 q3 very good thank you

The next question comes from Klaas Berglind from Citi. Please go ahead.

Thank you. Hi, Peter and Frederik, Klaas at Citi. So coming back to this destocking, I lost count almost. I think this is the third quarter we've seen destocking in North America. It's obviously highly unusual. We had this massive pre-ordering effect, etc., I mean, we expected that, but when you look ahead, Peter, and look at the inventories among your customers, speak to your customers, also in the channel, are you getting any indication that we're coming to an end? You gave a very specific comment on the destocking in medical, but I'm curious to hear what you're hearing on the industrial ag and construction verticals.

Thank you. Yeah, no, I think, Klaus, we are also surprised, to be honest. I mean, I think it's not even, I think it's the fourth quarter that we see this kind of destocking effect, where there are kind of ordering or they're not ordering order order intake is actually good it's positive in the quarter but but they still continue to to do the call-offs on a lower level and i mean it's not it's difficult for us as well to be honest i mean we don't really follow it we get guidance from from the customers that this talking is ending but then they still continue to order below i don't know where it is because today they are expecting speculating on lower pricing or that they are even more cautious what we'll be highlighting in this specific quarter is more related to off highway which is kind of where we see an increased stocking in the areas of construction equipment and mining a little bit and also agriculture so these are the areas which has been let's say more impacting the quarter and we continue to see kind of a low also which we are had for some time also less and more residential construction is also continuing on a downward trend. We are also, like you, to be honest, a little bit surprised that this is continuing and we don't really, customers are not indicating lower demand, they're indicating that they're more cautious. So that is something we are watching carefully and something that we are aware of, that this is strange. I mean, historically, if we go back earlier cycles, this talking has only been for or two quarters and now we are up to the fourth quarter. So it is a surprise class and I don't know what to say more.

I appreciate it's difficult. My second one, I get, Fredrik, your answer on teas that obviously there was a little bit of an anomaly to have it at this high level. But coming to the margin in TSS, better margin than I thought despite the Easter effect. And when we get this calendar effect, Obviously, there is more under-absorption, which is set to reverse into the second quarter. And given that you say that the MRP integration is on track, I'm just wondering if we can get closer to almost 22% once this easter effect reverses. I know that the 23% target is more towards mid-2025, but the money was better than I thought despite the negative volume. So I'm curious on the

easter impact if you can quantify it thank you but we are not guiding specifically on the model for an individual quarter class but what we meant with the mrp integration and we have clearly also said all the way that it's back and heavy so most of the synergies will materialize in 2025 but we are seeing progress with the projects that we are running That's how you should read that comment.

But we are, of course, running with the low capacity. We are running with the low capacity. We are underproducing actually in the quarters. Of course, if there is, let's say, a positive volume impact, if we manage that good, that should be a good drop through. But we are not confident to say that this kind of volume, extra volume is kicking in already in Q2. But when it comes, we do expect a substantial leverage on that extra volume.

Yeah, nobody. It's just a mathematical almost certainty that you get 2% back. That was my point. And my and my and my point as well was, I totally get the whole the whole comment. You don't guide sort of, you don't guide per quarter. But I think still, it was an encouraging level, given that you're still early days. So the MRP and then Easter versus I guess that was my point. But thank you.

Thank you.

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

Hi, Peter. Hi, Frederick. Thanks for taking my questions. The first question is about China. So you mentioned about China is the key driver of recovery. Can you elaborate a bit more about from what segments you see the strength to come from and whether it will be something that you see to be a sustainable momentum, given that when we look at the commentaries from the other companies with high exposure in China, they are actually giving quite a mixed picture regarding the recovery in China. So I would like to hear what you are hearing from the ground about China. That's the first question. And second question, a little bit more on the TSS margin. So again, it is quite a good development in this margin. Can you say that the impact from the previous investment in the key fast-growing segments to be, you know, something behind us so that we would

uh we will see some more improvement uh in terms of the segment margin even though the signature is coming from the acquisitions mainly coming next year rather than this year on china i think it is a fairly wide let's say improvement we do not see improvement if you say residential construction we are not that exposed to that but just to clarify it's not coming from that where we still see on the limited exposure we have to that segment, we still see a downward trend. But we have, let's say, an overall infrastructure construction is doing good, also then relates to mining, also construction equipment for the infrastructure construction is doing better, but that is from fairly depressed levels, to be honest. So it's not really back to where it were before but nevertheless it is a strong uptick semiconductors is another area which is doing good for us we also see general industry is also improving so there's a fairly wide uh wide improvement but also we need to be aware that it's coming from fairly let's say low levels so there's very easy comps so we must not kind of over react to it or or make it let's say too big of a thing, but nevertheless it is a substantial improvement compared to three years ago. On the second question, was that on TIS or what is it? I didn't get it there really. Was it an industrial solution or was it more? I don't know Fred, if you can take that.

I understood it was a ceiling solution. You mean the investment organization and the payoff of those investments?

Yeah, exactly.

Yeah, and I mean that will come gradually. We have invested in the organization. I mean, we talk about aerospace, health and medical in the past, now it's medical solution, Semicon and a few other segments. And then, of course, that should turn into incremental sales. So that will come gradually during the year and coming years.

We see, let's say, an aerospace firm payback in volumes. I mean, honestly, they're struggling with the growth a little bit there. So we don't really get the efficiency we want in the aerospace. So there we also need some operational improvements. So that is kind of an investment. So it's paying off in terms of extra sales. But I mean, we should get a better margin out of that. This is simply to be very blunt about that. Semiconductor is also kicking in. I mean, it's a smallish area for us, but nevertheless, now with M&E investments and with this, how should I say, the desire from some of the Asian uses of semiconductor equipment to get away from from american supply we are benefiting from that so that is also something which is also in the same very strong water intake but also on that one we are in a bit struggling to get the full efficiency out of that that growth yet but nevertheless very positive so so there is kind of several areas electrification is another area also where we have a lot of small businesses it's not kind of big orders but a lot of small pockets, which is growing. We are launching a new food grade material as well, which is also picking up. I mean, as you know, there is this discussion on PFAS, not PFAS material. And we have, let's say, a very good position in the areas where PFAS is going to be replaced. We have a very good portfolio of material also, which we see good order intakes. So in general, I think the efforts that we're doing is paying off. But as we commented before, it will take time. get it into the factories and get as a full efficiency and get it into the the profit with the in the right levels but overall we are satisfied and then of course there's a few areas which is slower like hydrogen or something like that which is slower which is more very early days but overall we we feel um water segment is also an area but just to note on a few which is still slow is generally impacted by residential construction being low but we also see that we move forward we have a good good range of material being launched in into that area but we still don't have the optics so even though we we are kind of having uh exposed to the press sales we are still investing in those segments because we believe in them long term so this is a mixed bag but we think it's uh we believe we firmly believe that we're doing the right thing and that we going to get the full benefit of this eventually.

Cool. Very helpful. Thank you so much.

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

Questions for me? uh my first question is related to baron and it would be interesting to know when you were doing your due diligence from baron if they had any significant impact on states and earnings from the coup with 19. that's my first question second question is related to yeah i can take that immediately they are not exposed to covid in the same way so that they are exposed to other segments where we are not really being fully

transparent yet about what segment, but they are not exposed to the COVID segment. Let's put it like that.

Super. Next, it's more like, Peter, your sense for underlying activity in the market. We've heard some other cap goods companies reporting on improving demand in early cyclicals. We heard something from Sunday talking about their business. We heard ABB and also some positive signs in Europe. It would be interesting to hear your take on that, given that you had earlier Eric talking about you being a bit cautious on your guidance. So I guess I'm coming back to that.

Thanks. Yeah, that's one. I mean, order intake is better than sales, if I put it like that. So we are moving in the right direction. But generally, we say, especially in ceiling solutions, if we get orders there, it's three to six months. ahead of us before we do the sales. But there is, if you solely look at the order book, it's going to get better. But of course, then we still have this uncertainty on inventory and the geopolitical situation overall, which could, let's say, create some extra cautiousness among a few of our customers. But I mean, we see the same. And if you refer to that, we see the same, that this is slowly improved WaterBook is growing, but sales is not growing in the same speed as the WaterBook is improving.

Fair enough. Thank you very much.

The next question comes from Douglas Lindahl from DNB Markets. Please go ahead.

Hello, gentlemen. I only had one question, actually, and circling back to the Barron acquisition. Given the importance that this company brings in terms of positive margin contribution, I would be curious to hear if you have any sort of updates on when more specifically we can expect this to be finalized. Obviously, you said before H1, but if you have any sort of updates would be usually interesting to hear.

Yeah, I mean, we are moving forward on that and we are more or less all approvals in place. We're waiting for some formal approvals. And that is kind of difficult. The indication is that this will be closed as a well within this quarter, let's put it like that. But I mean, it's still uncertainties since we're waiting for some, how should we put this, some formal approvals where we cannot control. So everything which is under our management our control is in place and we are still waiting once again for some formal approvals indication is that we're going to get this in the next few weeks put it like that but once again as you know we need to close it at the month end or a mid-month or something like that so we are curiously looking at exactly the date when we're going to get this if we've done yeah

The next question comes from Agnieszka Wajlela from Nordia.

Please go ahead.

Perfect, thank you. I missed the beginning to the call, so apologies if my question has been asked. But on medical solution, you do expect to reach 20% margin after the baron integration. But you can see that so far the business has been running at about 15% margin. And with baron adding 30% to sales to the division, it needs to run at significantly higher margin. So my question really is if you did quantify the exact EBITDA margin that baron is doing right now.

We are not yet the owners and we don't really want to comment on that, but we understand that this is looking ambitious, but we have a firm plan how to get there with synergies, with integration of Baron and also with the kind of operational improvements in running business as a combination of a few things, but That is a challenge that we have taken on and which we believe that we will conquer and that we will get to this 20%. I fully understand, I guess, that there is some doubts on exactly how to get there. But that is, yeah, the proof is in the putting there. And we believe that we're going to show you, let's say, by the end of this year, that we're going to get to this running rate of 20%. I don't think I can comment anymore on that one, because there is some synergies related to this as well, which has not yet been communicated.

I understand. And then on the stocking, the division, when did it start really? And when do you expect it to finish?

We have been fairly late. I mean, I don't know. Of course, we know we're a little bit, but if you look to other, let's say our competitors, they were kind of exposed to this already. I think two quarters away. We saw two quarters. It was the first one.

I would say it was probably during the autumn of last year and through the winter. So we haven't had any impact until very recently, basically.

We've been holding up, calling some project sales or some special sales within medical. And since they are dropping away now, we are fully exposed to these inventory drops. I think we've been overperforming, if I may say, for one or two quarters longer than most of our... competitors and this is now hitting us in this quarter. And we are not surprised in a way, if I may say. We knew this was coming and there is a few individual cases which is impacting us quite a lot. So it's not kind of an overall drop of 10%. It's more linked to individual cases, which is then hitting us a little bit harder. um but um of course i mean that's what i get i don't christopher you are looking to this a lot as well yeah well to answer your question we see the same development year and year in q2 and then we see an uh improvement substantially improvement in the second half the underlying order book is good i mean then the new project inflow is good they did a new call of the new project is good But this is more, let's say, running sizable customers that we have, which has indicated that they will not order anything before we're going into the second part of the year. So that is kind of the impact that we see.

Great, thank you. And then my last question is on your capital allocation. What priorities do you have during 2024?

I mean, it's the same as before. We're going to continue to invest in a fairly high level. We are improving. both our geographical balance. We are creating new cafes in India. We're building two new factories in Vietnam, expanding in China, and at the same time, of course, also improving our footprint in Europe and improving our footprint in North America. So we are going to continue to run CapEx in a good way. And now also with the Baron, with medical, we'll be also adding a plant in Costa Rica. So capex is going to be high, continue on a relatively high level from historical forms for us. With regards to acquisitions, we are still scouting for acquisitions. We are targeting primarily bolt-on acquisitions. Once again, we've been commenting this Baron acquisition, which is kind of a platform acquisition for us, which is different than the others. So hopefully you will continue to see bolt-on acquisitions, which is highly synergistic for us. And we're doing that. I said before with the focus on this speedway segments and let's say very close to the core of existing business in a way so we are not looking for any new areas outside of our current scope but we do in some time we have intensified the actions in order to kind of get a few of these cases executed also to note that we still feel that that kind of valuations is still quite attractive of course there's always competition on the acquisitions but we don't really see the competition increasing at the moment so we try to to get the ones done we which is available and fits us so you're going to see us investing high on on let's say um capital in capex and you're also going to continue us to to see making acquisitions i mean once again the baron one and this kind of size don't expect that to happen it's going to be smaller acquisitions in the yeah what you say tens of millions of euros i mean that is really the the size that we're primarily looking at at the moment yeah and and lastly on share buybacks is there any limit that you are setting yourself on repurchases No and we continue on the same and we have the AGM here in an hour or two and we're going to ask for a new mandate to continue in the same way for another year which is the run rate is then going to continue to be a billion second quarter roughly so there's no change in that one we feel that we can manage this pace of buyback well while still maintaining let's say a strong balance sheet and still having Cash to to execute both the the increased capex levels and also to continue to execute on this If I may call it smaller bolt-on acquisitions Perfect.

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

Okay, thank you. Thanks to all of you for showing interest in Trelleborg. And as usual, Kristoffer is well and very prepared to support you further with any other questions. And both Fredrik and myself, we will be on road shows in the next few days. So some of you will probably meet. And if you want to meet us, then please make contact and we are eager to support you to get a better grip of the Trelleborg story. So thanks again and see you or speak to you soon again.