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.